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Factoring for Private Duty Care Agencies

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By Phil Cohen

Acquiring private duty care financing for agency is tough enough when the economy is doing well, and close to impossible when the economy is suffering. This is especially true when considering traditional borrowing such as a bank, which has lending criteria that’s even tighter than usual. Not to mention, credit card companies have started drastically decreasing credit lines and raising interest rates on small-business credit cards.

In the meantime, private duty companies need cash flow to sustain their agency’s operating expenses, including payroll, rent, phones, and insurance, marketing and advertising costs. They also need cash flow to grow their business, which means purchasing additional software, adding new phone system or computers, or expanding into a new market.

The drought in financing possibilities is forcing business owners to take a more creative approach to securing business financing. For entrepreneurs who don’t want the hassle of paying back a loan and muddying up their balance sheet in the process, there is an excellent alternative financing option to consider – private duty care factoring. Selling invoices to a factoring firm is a common, yet underutilized way of keeping a company’s cash flow going.

As opposed to taking out a loan from a bank, a family member or a peer, private duty 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. 

Moreover, credit decisions are based on the creditworthiness of the private duty agency’s customers (i.e. Medicaid, VA or other governmental agency,) rather than the agency itself, allowing the business owner to leverage the higher quality of their customers’ credit in securing funds. (NOTE: It’s important to note that private duty care factoring companies cannot purchase invoices that are payable directly by individuals because evaluating the credit of an individual is far more difficult than leveraging the government’s creditworthiness).

In addition, many private duty care factoring companies are able to work with start-up companies, as well as those who are in a rapid growth phase. Many factoring firms also can fund receivables without requiring a personal guarantee of the private duty agency owner, allowing the owner to protect his/her personal assets. 

What’s more, private duty care funding arrangements tend to provide generous lines of credit because factors are able to increase their funding as their clients’ businesses grow. Here is the factoring process: let’s say that the owner of a private duty care agency sent employees into an elderly person’s home to assist that person throughout his/her daily activities. 

The agency owner then bills Medicaid 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. In turn, payments are sent to the factor.

Once the factor receives a payment, it charges a fee for the aged invoice once, and then releases the difference back to the agency owner. In the meantime, the private duty agency owner is able to continue his/her 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 to take the time to research factoring companies and select the best one to meet your agency’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 private duty care industry and offers flexibility with its funding.

In a time when more banks and credit card companies are saying “no,” private duty agency owners should look into accounts receivable factoring. When researching any kind of funding source, it’s important for agency owners to remain professional and be upfront about their company’s financial needs and goals in order to secure the best funding solution for their 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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