In my previous articles, I've explained how medical transcription companies can benefit greatly by selling their receivables to a factor in order to increase their cash availability. Instead of waiting weeks or months to receive payment, medical transcription services can factor their invoices and get paid within days.

I also discussed reasons why it's important to shop around for an accounts receivable factor who will best meet your medical transcription funding needs. I went over many different things to consider when choosing a funding company, including its size, location and area of specialty. In addition, I explained some of the general economics to consider (discount fees and advance rates), as well as a range of common additional fees.

In the final part of this series, I will discuss differing terms of contractual agreements and what to compare, variations of the invoicing process and which scenarios would work the best for your medical transcription financing needs. I will also review the various reporting capabilities that factors offer their clients.

As is the case whenever you enter into a legal business relationship with another entity, factoring companies will require that you sign a contract. It's important that you read through it and be sure to ask questions. One big thing to look for in a contract is whether or not the factor has monthly minimums/maximums. For example, some factors will require that you factor at least $50,000/month, which shouldn't be a problem if you are invoicing over $100,000 every month. Keep in mind that most factors will implement a penalty fee if you do not meet the minimum monthly factoring amount. On the other hand, a smaller factor may not have a minimum amount, but they might have a maximum amount instead. So if a factor says that they can only fund up to $500 thousand in a month, and you know that your company does well over $1 million in sales every month, you will have to keep searching.

Another very important issue to look for in a medical transcription funding company is the length of time that you are required to remain in the factoring relationship. Some factors are more accommodating in this area than others, providing you have the flexibility to choose how long you want to factor. Still, other factoring companies will require you to sign a term-contract for 12-24 months. If this is the case, the factor will also charge an early termination fee if the contract is broken before the term expires. Every company enters the funding equation at a different point. For example, where one business may only need to factor for a few months to get them through a small cash flow jam, another company may use factoring for years. Having an estimated length of time in mind will make it easier for you to find a medical transcription factoring company whose terms are conducive to your business' needs.

Also included in the contract will be details on the type of guaranty that the factor will require before funding your invoices. Although there are a few factors that will not require a guaranty, the majority of them will want either a personal guaranty, whereby the seller is personally responsible for any unpaid invoices, or a validity guaranty, in which the seller guarantees that all of the invoices that are sold to the factor are valid, were prepared after services were rendered, and that the customer has agreed to pay them.

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