Receivables advance: what it is and what it costs the clinic
Quick facts
- Definition
- Receiving early the value of installment card sales, at a discount.
- Who charges
- The card processor or the institution that makes the advance.
- Cost
- A discount on the advanced amount, which varies with the term and the contract.
- Effect
- Improves cash flow now and reduces the procedure's margin.
- In pricing
- Counts as a financial cost when installments are the clinic's rule.
A receivables advance is the operation in which the clinic receives now what the client paid by card in several installments. Instead of waiting 30, 60 or 90 days for each installment, the amount arrives at once, with a discount charged by the card processor or another financial institution.
How does it work in practice?
In an installment sale, the processor usually passes on each installment month by month. Whoever advances trades the term for the discount. The more installments and the longer the term, the larger the total discount tends to be. The terms come from the contract and differ from one company to another, so the numbers below are only a sketch of the logic.
Hypothetical example: a procedure of R$ 1,200.00 paid in six installments. If the clinic advances everything and the total discount is 8%, it receives R$ 1,104.00 on the day and gives up R$ 96.00.
How does this enter the price?
| Element | What to consider |
|---|---|
| Card terminal fee | Cost per sale, which changes with the installments |
| Advance | Extra cost to get paid early |
| Contribution margin | What is left after variable costs |
| Default | Less relevant on cards, more on bank slips and installment notes |
Precautions
- Compare the cost of the advance with that of other sources of cash.
- Do not pass the fee on to the patient in a way that goes against consumer rules or those of your professional council in Brazil.
- Record the revenue under the cash or accrual basis that the clinic's accounting adopts.
Also known as: advance on card sales, receivables discounting.
Frequently asked questions
Is advancing receivables worth it for the clinic?
It depends on the term, the rate and the need for cash. It is worth comparing the cost of the advance with that of the capital the clinic would otherwise forgo, always using the numbers in your contract.