Using Factoring to Finance a Home Health Care Agency

Managing cash flow is one of the most important tasks of running a home health care agency, second only to providing good care to your patients. However, cash flow is often unpredictable and hard to manage. This difficulty can lead to financial problems.

The greatest expense for most home care agencies is staffing costs. It’s also the most challenging expense to manage. Payroll is a recurring expense that is paid weekly or bi-weekly and must be met. And as your home health care agency grows, headcount increases – and so does payroll.

While expenses are regular and constant, revenues can be slow and unpredictable. Medicare, Medicaid, and third-party insurance providers have complex payment procedures that can take 30 to 90 days to pay a claim. Meanwhile, you still have to cover your expenses to keep the business running.

Under these circumstances, it’s easy to see how a home health care agency could experience cash flow problems. Unless you are well capitalized, or have a cash reserve, you won’t be able to grow easily. As a matter of fact, it’s not unusual for companies that are growing quickly to encounter cash flow problems. Typically, these problems relate to payroll or payroll taxes.

Improve cash flow by financing medical claims

A simple and effective way to solve this problem is to use medical receivables factoring. This solution allows you to finance slow-paying insurance claims from Medicare, Medicaid, and other third-party payers. Instead of waiting up to three months to get paid, you can get immediate funding from the medical factor. This funding provides the working capital your agency needs to pay your staff of caregivers and cover other corporate expenses.

Financing your medical claims has a number of benefits over other alternatives. Medical factoring is easier to get than conventional bank financing. And you can get the line quickly, usually in a couple of weeks. Lines are flexible and can grow as your home health care agency grows. This flexibility makes medical factoring an ideal option for new and growing home health care agencies.

How does medical receivables factoring work?

Claims are submitted in a batch and financed in two installment payments. The first installment payment covers 70% to 80% of the net payable value of your claims. It is deposited to your bank account soon after the claims are submitted for financing. Note that the financing is based on the net payable value of the claim – the amount that the insurance company is expected to pay.

The remaining 20%, less the financing fee, is rebated to your bank account as a second installment once the claims are paid in full. Most home health care agencies that use factoring finance their claims regularly. This consistency improves their access to working capital and streamlines operations. You can learn more here.

Simple application process

The application process for medical receivables financing is fairly simple. It’s certainly easier than getting bank financing. Your home health care agency must submit an application along with sample claim information and a couple of financial reports.

Small agencies can usually complete the process and get their funding in a week or two. The process takes a little longer for larger agencies with more complex financial statements. Factoring can be used even if your company has had tax problems, as long as the problems are being addressed with the taxing authorities.

Handling Medicare and Medicaid payments

Financing Medicare and Medicaid payments usually requires a special process. Often the bank account that receives the funds is transitioned to a control account (also called a sweep account). This approach allows the payments to be processed and credited appropriately. Learn more about Medicare and Medicare payments.

Do you need medical factoring?

We are a leading medical factoring company and can provide you with competitive terms. For a quote, fill out this form or call us toll-free at (877) 300 3258.