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Healthcare staffing agreements typically allow a 30-day payment window within which clinics, hospitals, and other clients that depend on a staffing company must pay their monthly invoice in full. However, many clients clear their invoices after 60, 90, or even 120 days. This can be problematic for a staffing company as it can run out of cash to pay for its weekly and monthly dues, such as employees’ salaries, utility bills, office rent, and payments to suppliers.
Here is where healthcare staffing factoring can help. When factors buy accounts receivables, the staffing company can get an advance of the amount they’re owed in just two to three days instead of 30 or more days.
Factors can buy one invoice (spot factoring) or purchase the entire list of accounts receivables (whole ledger or full-turn factoring)
At Business Factors, our healthcare staffing factoring service entails four easy steps:
- A staffing company provides us with a copy of the invoice they sent to their client (the account debtor).
- We conduct a credit check on the account debtor and verify the invoice.
- We pay the advance to the staffing company.
- Once we receive the total invoice payment, we pay the staffing company back the reserve.
Staffing factoring for healthcare can throw a lifeline to staffing companies that need cash on hand immediately. As a short-term funding solution, factoring is convenient for healthcare staffing businesses that cannot afford to have delinquent paying customers or do not want the hassle of following up on unpaid invoices.
Factoring is also a good option for small businesses still building up a good credit rating. Factors don’t look at the staffing company’s creditworthiness because they’re not the ones who need to pay; the healthcare facilities do.
Healthcare staffing companies have so much to gain from factoring. Here are some of the benefits:
- It is easier to gain working capital through staffing factoring than applying for loans from banks.
- The cash inflow ensures that you can pay your employees’ salaries and overhead costs.
- The burden of following up on unpaid invoices is no longer on you.
- You can hire more seasonal staff when the need arises.
- Thanks to a balanced cash flow, you’ll have a better picture of your business’s financial health.
Let’s break down the cost of staffing factoring for healthcare:
The discount rate is the service fee factors charge. The rate can fall anywhere between one and five percent, depending on several factors:
- The sum or total of the invoice/s
- The number of invoices purchased
- The creditworthiness of your customer or account debtor (the healthcare provider who has yet to pay the invoice)
- The average time it takes an account debtor to pay their invoice
The advance is the amount that the factor pays the staffing company. Depending on the discount rate and other considerations, the advance rate can be anywhere between 70 and 96 percent.
The reserve is a deposit that the staffing company gets back once the account debtor pays the invoice. It is usually the remainder of the invoice minus the advance and discount rates.
Factoring companies can also charge other fees, especially if they offer recourse factoring (a fee structure that penalizes the staffing company if the invoice is unpaid within a certain period). Factors that provide a flat rate and are non-recourse, on the other hand, do not charge extra fees.
To give you a good idea of how much staffing factoring for healthcare costs, below is an example of a factoring agreement and how it will play out:
- Invoice amount: $10,000
- Advance rate: 90% or $9,000
- Reserve: 10%, or $1,000
- Discount rate: 2.19%, or $219 every 30 days
- Type of arrangement: Non-recourse
A staffing company with a $10,000 invoice will receive an advance of $9,000. With a discount rate of 2.19 percent, the business needs to pay $219 per month to get the invoice factored. If the customer pays the invoice after three months, the business will pay the factoring company $657 (or $201 x three months). Since the agreement is non-recourse, the staffing company doesn’t need to pay anything else and will get back the remaining $343 from the reserve.
Are you looking for other funding options to improve your cash flow? You can apply for a merchant cash advance (MCA) or asset-based loans. If your business doesn’t have many assets yet, you can try revenue-based loans instead. Any of these can give you enough working capital to ensure uninterrupted operations or pursue expansion plans. Just be sure to carefully review the agreement terms and watch out for predatory clauses, like a confession of judgment. Feel free to consult with Business Factors to determine which loan is right for you.
Here’s what makes Business Factors the best choice for healthcare staffing factoring:
- Financing in 2-3 business days
- Hassle-free application
- Competitive, budget-friendly rates
- Client-accessible, online account management system
- Back-office receivables and invoice handling assistance
- Walk-throughs on the staffing factoring process
- Friendly customer service
Healthcare staffing factoring helps healthcare staffing businesses obtain enough cash flow to make payroll and pay off debts that are due every two to four weeks. Staffing factoring can also finance business expansion plans and bring in working capital without the need for a stellar credit rating. Unlike traditional loans, staffing factoring disregards the applicant’s credit history and checks the healthcare provider’s creditworthiness instead. For this reason, staffing factoring could be the best choice for businesses with short or problematic credit histories.
The staffing industry enjoys a high advance rate for invoice factoring because service invoices are hard to dispute. This explains the 90 percent or higher advance rate in healthcare staffing factoring (in contrast, the advance rate for other sectors can be as low as 60 percent). So unless your clients are notorious for delaying payments, the benefits and value that you can get from healthcare staffing factoring will far exceed the cost of the discount rate.
Business Factors is the best choice for healthcare staffing companies. We offer non-recourse factoring and can advance up to 96 percent of your invoice’s face amount. If, however, you’re interested in other working capital loans, we can also provide other options. Contact us and our friendly staff will help you find a financing solution that meets your needs.