In today’s medical industry, there is so much upfront research and development cost that by the time the orders from customers start to occur, the company is out of working capital to deliver the goods.
From device manufacturers to distributors, the medical device industry requires a large amount of inventory for distributors to stock on hand. Manufacturing these type of medical implant products requires a large lot run to cut cost on production. This may cause immense inventory levels and long inventory turns. Some items will never be ordered but the manufacture has to keep items in stock just in case its ordered someday.
A recent implant distributor was able to attain a line of credit using receivables as collateral. Accounts receivable financing companies called factoring companies specialize in financing outstanding accounts receivable due payable from credit worthy customers.
The challenge with financing medical receivables relate to implants is that the distributor or manufacturer of the implant device is not allowed to invoice for the delivery of the product until the hospital installs and completes the implant surgery. Usually, the transaction flow is the following:
1. Patient is measured and diagnosed with the replacement and a surgery date is scheduled, hospital issues an order fulfilment to distributor or manufacturer of implant device.
2. Hospital receives implant device and completes surgery.
3. Hospital issues purchase order with credit term instructions
4. Distributor / Manufacturer invoices with PO reference net 30 to 60 days
The task at hand with the long term invoicing process, and replenishing inventory on delivered product for over 45 days before allowed to invoice for the product causes a large cash flow gap for the business.
1st Commercial Credit specializes in financing accounts receivable for medical device companies.