Medical Accounts Receivable Funding Glossary

Many healthcare businesses have started to become familiar with the advantages of Medical Accounts Receivable (MAR) Funding over the past few years. With a new financial tool comes new vocabulary to become familiar with as well. By understanding the terminology used in the MAR Funding industry, you can gain a better understanding of how this financial tool works and how it can benefit your healthcare company.

Advance Rate: The percentage of the factored invoice advanced to a client upon initial invoice funding. The advance rate is typically expressed as a percentage of the total invoice amount. Advance Rates usually range from 70-80%.

Discount Fee: This is the fee charged by the funding company for performing funding services. Discount fees are typically time-sensitive and are usually a flat, fixed percentage of the total invoice. This fee can be calculated on a daily basis or in 15 or 30-day increments.

Due Diligence: The background check and research conducted by the funder to assess the validity of a prospective client (and that client’s customers) before officially entering into a funding agreement. Due diligence generally involves credit checks, appraisals, UCC searches, lien searches and/or on-site visit with clients.

Medical Account Receivable (MAR) Funding: Medical accounts receivable funding is the sale and purchase of an asset at a discount. There is no debt incurred on the client's balance sheet, and the net result of each transaction will be the conversion of the client's accounts receivable into cash.

Payor: The person, company, or government responsible for making payments on an income stream.

Reserve: An amount withheld by the funder net of the advance. Can be used as a financial cushion to offset against payment shortages, client and the customer disputes, or bad debt losses due to non-payment. The reserve should be released to the client after the customer has paid the funder the total money due on the invoice.

Reserve Release: The process of the funder releasing final monies due the client once the invoice has been totally satisfied less any applicable fees or charge-backs.

Working Capital: In general, the funds needed by a business to pay current expenses such as payroll, benefits, rent and other operating costs.