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Home Care Factoring is an Alternative Funding Option for Agencies

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By Phil Cohen

It’s hard for a Home Care Agency to obtain traditional financing when the economy is doing well, and it’s close to impossible when the economy is suffering. Keeping in mind that the time-present is considered to be the worst economic credit crisis since the Great Depression, and the chances of a Home Care Agency owner locating money for his/her growing business is slim-to-none.  This is especially true when considering bank financing, whose lending requirements are more stringent than usual. In addition, credit card companies have slashed credit lines and increased interest rates on small business credit cards. So what’s a Home Care Agency owner to do?

Agency owners need to take a more creative approach to secure financing to see their business through these rough times.  One alternative cash flow source worth considering in these cash-strapped times is accounts receivable factoring.

Selling invoices to a factoring firm is a very common, yet underutilized way of keeping a company’s cash flow going. Often thought of as a financing method reserved only for agencies placing temporary workers with large corporations, the concept of factoring home care receivables has recently been gaining momentum.

As opposed to accepting a loan from a bank, a family member or a peer, home care factoring is not a loan at all.  In this type of funding arrangement, the factoring firm purchases the rights to an invoice, advances cash immediately on that invoice and then collects on it.  Credit decisions are based on the creditworthiness of the agency’s customers (i.e. Medicaid and/or Medicare) rather than the agency itself, allowing the business owner to leverage the higher quality of their customers’ credit in securing funds.  It’s important to note that factoring companies cannot purchase invoices that are payable directly by individuals because evaluating the credit of a consumer is far more difficult than leveraging the government’s creditworthiness.

In addition, many factoring companies are willing to work with start-up companies, as well as those who are in a rapid growth phase.  Many factoring firms can also fund receivables without requiring a personal guarantee of the business owner, allowing the owner to protect his/her personal assets.  Accounts receivable factoring agreements also tend to provide generous lines of credit because factors are able to increase their funding as their clients’ businesses grow.

For example, let’s say that the owner of a Home Care Agency sent employees into an elderly person’s home to assist that person throughout his/her daily activities.  The agency owner then bills the governmental entity for the services provided. Because there is some lag time between when the agency owner sends the invoice and when Medicaid actually pays for those services, the agency owner could sell that invoice to a factoring firm and receive the majority of the reimbursement immediately. The factor charges a fee for the aged invoice once it receives the payment from Medicaid, and then releases the difference back to the agency owner.  As a result, home care factoring allows the company owner to continue its basic business operations.

Factoring firms come in all different shapes and sizes, and they are spread out all over the country, and each offers their own twist to the invoice funding model.  Therefore, it’s important for Home Care Agency owners to take the time to research factoring companies and select the best one to meet their company’s financing needs.  Some more pertinent qualities to consider when choosing a factoring company is to find one who is a member of the International Factoring Association (IFA), understands the uniqueness of the Home Care industry and offers flexibility with its funding.

In a time when more and more banks and credit card companies are saying “no,” business owners can and should take advantage an alternative funding option such as accounts receivable factoring. When researching any kind of funding source, it’s important for agency owners to remain professional and be upfront about his/her company’s financial needs and goals in order to secure the best funding solution for his/her Home Care business.

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Phil Cohen

About the author

Philip Cohen is the founder and President of PRN Funding, LLC. PRN Funding is an extraordinarily focused niche player in healthcare funding. With years of…... Read More

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