Specifically, Credit Unions, Community Development Financial Institutions (CDFIs), Micro Lenders and Accounts Receivable Factoring Firms all said YES to the majority of their small business financing applications while most larger banks repeatedly said NO.
Although a home healthcare agency owner could be approved for financing by any of the alternative lenders listed above, the best alternative financing option for them is to work with a home healthcare factor, and here's why:
1. Home Health Care Factoring Creates Positive Cash Flow
Some Medicaid waiver programs can take up to a month to reimburse an agency for its pre-approved non-medical in-home services. This lag in payments makes it difficult for new or growing agencies to be able to meet payroll and other financial obligations. However, when agency owners sell their Medicaid receivables to a home care funding firm, funds can be directly deposited into their bank account within hours. Instead of waiting weeks or months, factoring your home care business gives business owners immediate access to cash.
2. Home Health Care Factoring Helps Eliminate Overhead
In addition to providing capital, home health care factors provide invoice processing services, which include the following: posting invoices to a computer, depositing checks, entering payments, following-up on past-due invoices and producing consistent reports. Agency owners can greatly reduce their current overhead costs associated with processing invoices and eliminate the overhead cost of handling collections when they work with a factoring firm. Moreover, agency owners can use the time they used to spend on collections, administration, bookkeeping, talking to banks, etc. to focus on marketing, sales and other business-growing activities.
3. Factoring Medicaid Receivables Helps Home Health Care Agencies Build Credit
As was previously discussed, home health care factoring provides agency owners with adequate cash flow. This new found access to capital gives agency owners the ability to pay its vendors on time, helping them to establish a good credit rating. Having good credit will make it easier for vendors and other financial institutions to extend credit to the agency in the future. In addition, factoring home health care allows agency owners to take advantage of early payment discounts. For example, some vendors will offer a two percent discount if a home health care agency owner pays its bills within ten days. This savings can then be used to offset the cost of factoring.
Eventually, the big banks will start lending again. In the meantime, home health care factoring is a great alternative financing option for agency owners to utilize. Specifically, home health care funding generates a positive cash flow, eliminates overhead costs and helps home health care agency owners build credit.