Alternate Working Capital Policy

Alternate Working Capital Policy
Like many hospitals in the United States, Elijah Health Center (EHC) is financially vulnerable, due to years of funding cutbacks, reductions in Medicaid reimbursements, cuts Medicare payments, and increase in the discounting pressure of managed care. Finding alternative working capital is crucial to reduce future difficulties for EHC. In this paper, recommendations for EHC’s financial problems will be discussed in the following areas: alternate sources of short-term financing available to EHC, how account receivable and inventory did affect EHC business policies, review of the cash conversion cycle for EHC and its important to EHC’s working capital management.
Alternate Short Term Funding
Like many health care firms, Elijah Health Center (EHC) experiences a short-term need for working capital from time to time during their operating cycles. Finding capital funding is a major issue for many health care organizations. Capital funding is defined as funding used to expand or renovate a building, purchase major equipment or construct a new facility for a health care provider (McGlaun, 2009). The need for funds may have resulted from a predictable seasonality in the receipt and disbursement of cash or it may represent an unexpected business event (Cleverley & Cameron, 2007). Usually, commercial banks are the main sources of short-term loans. However, alternate resources, both private and public, are also available. Private funds come from organizations such as charitable giving organizations, foundations, direct giving programs, community groups and voluntary agencies whereas public funds come from the government such as federal, state, and local agencies (McGlaun, 2009). Depending on the need of the fund, health care organizations can choose from single payment loan, line of limit, revolving credit agreements, term loans, and letter of credit. The single-payment loan is the simplest credit arrangement and is recommended for a...