There is a common misconception that healthcare staffing factoring is a complicated type of financing. In actuality, the factoring process is actually quite simple. All it takes is five easy steps…
Step One: Sell Healthcare Staffing Agency Invoices to a Factor
Technically, the first step in the healthcare staffing factoring equation happens when the agency’s customer (presumably a medical facility) has a shift open and requests the agency to fill that position. Once an agency employee works the shift, the agency is able to invoice the facility for the hours worked. At any time after the agency has invoiced the medical facility, it also has the ability to sell the invoice to a healthcare staffing factor.
The actual sale of the invoice is usually accomplished electronically, in that the agency emails or faxes a copy of the invoice along with corresponding signed timed sheets to the healthcare staffing factoring agency. The invoices and timesheets must be accompanied by an Assignment of Accounts Receivables form, which lists out all the invoices the agency wishes to sell to the factor and includes a signature from an authorized employee of the agency.
Step Two: New Debtor Credit Check
Once the healthcare staffing factoring agency receives the schedule of invoices and timesheets, an account manager reviews it for new customers. If there happens to be new customers (a.k.a. debtors), the account manager will conduct a brief credit review in order to establish a line of credit for that debtor. Typically, the credit review process can be completed within 24 hours of receipt. Once a new debtor has been approved for funding, the account manager will notify the debtor’s accounts payables department that when they receive invoices from the agency, the payment should be remitted directly to the factor.
If there are no new debtors included with the schedule, then the account manager simply moves on to step three of the healthcare staffing factoring process, which involves verifying the submitted invoices.
Step Three: Healthcare Staffing Agency Notifies and Verifies Debtors
Because a healthcare factoring firm is advancing cash based off of services that have already been rendered, it’s customary for the factor to follow-up with the debtors to be sure that they were satisfied with the staffing services, and they intend to pay the invoice.
The level of detail involved with verification varies from factor to factor. For example, some factoring firms verify every single invoice, confirming with a DON (Director of Nursing) that “Employee X” from ABC Staffing worked a 12-hour shift the prior week. Whereas, other factors might conduct “spot verifications,” in which account managers will select random invoices to verify within each schedule. Regardless of how often a factoring firm verifies invoices, it’s important for healthcare staffing factoring agencies to remember that factors will not advance money on an invoice unless they are confident that the invoice will be paid.
Step Four: Healthcare Staffing Agency Receives Cash
After the notification and verification procedures have been completed, the healthcare staffing factor is able to purchase the agency’s invoices and advance cash. In this day and age, healthcare staffing factoring firms generally send money electronically via same day wires and/or ACH (automated clearing house) transfers, which is basically an overnight funds transfer.
It’s important to keep in mind that the criteria for receiving a same day wire may differ from that of receiving an ACH. For example, some factoring firms may institute a specific funding cut-off time, requiring healthcare staffing agencies to send in their invoices and time sheets before a specific time in order to be funded the same day.
Step Five: Healthcare Staffing Factoring Firm Receives Payments and Remits the Reserve Back to the Agency
If you recall from step three, the healthcare staffing factoring firm notifies an agency’s debtors to remit payment directly to the factor the first time it purchases an invoice for that debtor. At the time a factor receives payment on an invoice, it retains its fees for advancing cash and then remits the difference back to the healthcare staffing agency. In factoring lingo, the difference that is remitted back to the agency is called the “Reserve.”
When it comes to how often a healthcare factoring firm releases reserve, there are many different positions. Some factors conduct automatic reserve releases on specific days each month, while others only release reserve upon request. Some factors require a minimum balance to remain in the reserve account at all times. Whatever the case, it’s important for healthcare staffing agencies to be aware of the factor’s reserve release procedures.
As previously stated, it’s a common misconception that healthcare staffing factoring process is a complicated. Although the exact procedures may vary from factor to factor, the basic healthcare staffing factoring model does not change.