Managing Revenue and Working Capital to Avoid Factoring in Health Organization - Essay Example

Download file to see previous pages... Another risk is that when debtors default in paying their invoices on the stipulated date the hospital risks paying more interest to the factoring company which was not budgeted for. Lack of proper management of working capital and revenue inflow might lead to the business getting to a situation of insolvency. Creditors to the health organization might be claiming from the organization more than the assets of the organization which might lead to bankruptcy. This might tatter the image of the organization and lead to poor performance of the credit rating of the hospital. Banks and other financial organization will refuse to extend any loan to the hospital in future date which might cripple the organization when a need for capital arises in future dates. When the health organization gets into this situation it will lack the liquid capital to grow, pay suppliers or meet unexpected costs within the health unit. Some of the measures that the finance officer has to take into consideration to avoid such situations are:
The health organization will need to balance between acquisition of assets and payment of its recurrent expenditure like salaries and wages. The moderate form of working capital policy would suit the health center to avoid situations of the need of having to look for short-term debts to pay for its current and long-term assets. This policy will do away with risks that come with the aggressive policy of working capital where short-term debts will be needed to finance fixed or permanent working capital. The fluctuating working capital will be financed through short-term borrowing. This situation will eliminate a situation of financing all the working capital needs from short-term loans which may lead to factoring within the health unit (Nowicki, 2011).
The health organization might be expanding or buying long-term assets like medical equipment. Buying of these assets will lead to huge cash outflows which will affect the availability of cash to meet other expenditures. ...Download file to see next pagesRead More