Yet, in reality, it’s a dead asset. In other words, it doesn’t increase in value on its own or even earn a rate of return. It’s listed on the balance sheet, but that’s about it. Yes, it does eventually turn into money, but not always. Shouldn’t you reap a benefit from your AR’s inherent value while addressing two of your biggest concerns?

Retirement planning and malpractice litigation are real issues for today’s medical professionals. One is often neglected and/or under funded. The other is a constant threat and a huge cost and concern. If you have a retirement plan, chances are the maximum amount you can contribute each year is a small percentage of your income. You need to do more, and you’re on your own to do it. Your medical liability coverage premiums are going through the roof, and the coverage limits are going down. Simply put: you’re paying more for insurance that is protecting you less. If your malpractice policy won’t cover the entire claim, then the plaintiff’s attorney probably starts to look at…your accounts receivable.

Enter accounts receivable financing, a little known strategy that’s been around for over 20 years. Let’s first discuss the concept behind the strategy. You’ve used other people’s money to start your practice, buy a house, go to school, buy a car, etc. Why did you borrow the money for those things? Because you had to get started on them, otherwise, you wouldn’t be in the position you’re in today. Leverage used properly can make a difference; ask Donald Trump. Wouldn’t it make sense to do the same to fund your retirement using the power of your practice?

AR financing allows you to turn a large dormant asset into a personal retirement plan outside of the business. This is achieved by leveraging your AR and putting the full proceeds to work immediately. By doing this, you create a parallel asset that is fully invested with the intent to generate a positive return for minimal cost without interrupting your cash flow.

With the concept in mind, let’s talk about the actual mechanics involved. A long term interest-only loan is taken out based on an average value of the accounts receivable. Typical loan terms are interest-only for periods of 10, 15, 20 years - or can be for a lifetime depending on the providers. Proceeds from the loan (a large lump sum) are typically put into a relatively conservative, tax deferred investment. This allows the power of compounding and time to create a potentially bigger asset than the loan amount. Your practice pays interest only on the loan at usually better than traditional commercial lending rates with the potential for a tax deduction on that interest payment.

A lien is placed on the receivables and possibly on the outside investment. Typically, at retirement the loan is repaid with either outstanding accounts receivables or from the investment itself. It can also be a combination of the two. Just make sure you use the advice of your tax professional so that you do it in the most favorable way. Consult with a business attorney too. Henri Tartt, Esq., a business lawyer in Los Angeles, California suggests that you consult local counsel to review the documents presented by the lender.

What are the potential benefits of using this strategy? Why should you even consider doing it? What makes this strategy attractive is that you are taking money that’s tied up in your practice and creating an asset outside of the practice for your benefit. This is done without selling the business and well before reaching retirement. You now have the power of time to allow it to grow into something meaningful for your retirement needs. This is an immediate large sum investment that is outside the business for your benefit and not subject to typical retirement plan restrictions. In other words, you’re not making employee contributions with the proceeds. At retirement, depending on the investment chosen, it can create retirement income that is a tax advantaged for YOU.

On the advice of your tax advisor, the loan interest may be deductible - thus reducing your “real” interest cost. There could be death benefit protection depending on the investment choice. Usually there’s no personal guarantee needed for the loan. Another benefit is that the lien on your accounts receivables may discourage frivolous lawsuits and/or encourage settlement for a lesser amount. Only your attorney can determine that for you, and it should be discussed thoroughly beforehand.

Are you a candidate for this strategy? It works for an individual practice as well as professional groups. You should have a minimum AR or cash flow of $100,000 since the lending programs have minimum loan sizes. Because time is an important concept in regards to the return, you should be at least seven years or more away from complete retirement. You should be relatively established with somewhat predictable AR’s, typically not start up practices. It is common for the strategy to be done multiple times as the practice’s receivables grow.

Great, can you just go to your bank and get started? Be ready for a blank stare. The best place to start is with your financial planner or insurance agent. Ask them about it by testing their knowledge on the spot, because chances are they don’t know about it either. It’s an advanced concept that few planners know about. Once you find one who does, he or she will guide you through it.

Your planner should be working with a company that specializes in AR financing. You want to do this with someone who has done it before. Their attorneys and tax advisors can help guide you and answer questions. They have pre-existing loan arrangements with favorable terms from a lender to help streamline the paperwork during the lending process. They should also provide ongoing administration for reporting purposes. Something to look for in the investment that you choose is that it has high early cash values and no or minimal surrender charges. This gives you greater flexibility should you choose to pay off the loan earlier than expected.

In summary, if you have that nagging feeling about not doing enough for your retirement, then accounts receivable financing may help. You’ve worked hard to have those receivables. Time for them to return the favor by working hard for you. If done correctly, accounts receivable financing should allow you more money for retirement.

Geoffrey L. Bates is a CERTIFIED FINANCIAL PLANNER(TM) Practitioner located in Los Angeles, CA. He specializes in helping and educating high net worth individuals and business owners plan before and during retirement. He can be reached at (800) 806-0813 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it . Henri Tartt, Esq., MBA can be reached at (213) 480-1511 or This e-mail address is being protected from spambots. You need JavaScript enabled to view it

The information provided in the above article is intended to be informational in nature and is not a recommendation to the suitability for a particular business or individual. Geoffrey L. Bates, CFP® does not give legal or tax advice. You should consult with your own tax & legal advisors before taking any action.