5 keys to A/P financing that can help address the healthcare financial crisis
Health systems and hospitals have long been struggling financially against rising costs and declining revenues. The COVID-19 pandemic exacerbated this trend by striking a sudden and profound blow to healthcare organizations’ revenue with the order to cancel or delay elective procedures. The American Hospital Association (AHA) estimates the financial impact on hospitals to be $202.6 billion from March 2020 to June 2020.a While a path to revenue recovery is in sight, it is still far out of reach.
Even before the pandemic, some healthcare organizations had exhausted existing lines of credit from their financial institution partners. Some were forced to delay supplier payments because they had to use their cash on hand to finance payroll and pay basic operating expenses.
To help organizations overcome such challenges, new solutions have emerged for accounts payable (A/P) financing that expand a health system’s or hospital’s network of banking partners beyond existing portfolio relationships.
Here are five keys to look for when selecting an A/P finance solution for supplier payments.
1. Supplier-specific focus
To satisfy supplier debt, a healthcare organization requires a solution designed to direct funds where they are needed while streamlining processes to facilitate timely supplier payments. The solution should be specifically structured for the payment of supplier invoices. It should integrate the funding source from the financial institution directly with an electronic payment platform for seamless, accurate and on-time transactions.
In today’s challenging financial environment, health systems and hospitals often struggle with limited banking relationships and, therefore, limited options in terms of financing. They should choose a solutions provider that has a broad range of financial partners and trusted relationships with these institutions. The provider should be willing to make introductions in order to help the healthcare organization find the right banking partner and lending options to meet its specific AP finance needs.
3. Rebate eligibility
Supplier rebates are a valuable way to offset costs and take advantage of contracted savings opportunities. Eligibility for rebates therefore should be part of the chosen A/P financing solution. When the solution is embedded into an e-payment platform, it is easier for health systems and hospitals to keep within payment terms and capture rebates.
4. Freedom from penalties or fees
The reason health systems and hospitals seek an integrated A/P finance/e-payment solution is to access additional capital cost-efficiently. The solution should have no upfront costs for healthcare organizations leveraging it for accelerated automated clearing house (ACH), commercial card payments and other A/P modalities.
5. Flexibility and float
The financial needs of health systems and hospitals can change based on various factors, some predictable and others unexpected, as we have seen with the COVID-19 pandemic. Therefore, these organizations require a financial solution that is flexible enough to change with them. Liquidity should enter the working capital cycle early, providing the provider organization with funds as needed for supplier payments. When the financing is delivered in the form of a revolving line of credit underwritten by a lender with all payments facilitated through an integrated ePay solution, providers can take advantage of float, using the lender’s funding to pay suppliers on time while holding onto their cash longer.
An ongoing solution
When was the last time your organization reevaluated or adjusted its approach to supplier payments? Hopefully, you discuss, analyze and refine it regularly. It should be reflective of your current financial needs but also help strengthen your supplier relationships.
Today, healthcare providers are looking for ways not only to conserve cash on hand and bolster their balance sheets but also make timely payments when incentivized. A/P financing helps accomplish all these goals while offering flexibility and complementing an organization’s existing suite of working capital solutions.
Bring up the idea of A/P financing at your next strategy meeting. See what kind of responses you receive.
a AHA, “Hospitals and health systems face unprecedented financial pressures due to COVID-19,” May 2020.