Medical staffing agencies provide a service that will always be essential for home healthcare services, clinics, and hospitals. It is a great place for hard-working nurses to continue offering their incredible skills to care for others.
Having a business that can offer services from trained nurses to give immediate help to those in need can be very profitable. Hospitals and clinics are always looking for temporary nurses to give them a hand during difficult times or when they become understaffed.
While being the owner of a medical staffing agency can be a business that will always have clients, it can be difficult to grow when you are short on money due to clients taking a long time to pay. Luckily, there is a simple answer to fix that problem and it is invoice factoring.
Invoice factoring is an easy and quick way to get money instantly without putting your business at risk. You can get great options and flexibility from invoice factoring companies such as prnfunding.com that aid business owners with the steady cash flow that they deserve.
Factoring unpaid invoices is a common choice for businesses that want to ensure that they are paying their employees without any delays. Not meeting payroll on time can cause a lot of problems between you and your staff, as well as giving your business a bad reputation.
Solve all of your financial problems with a simple solution that is provided by invoice factoring companies. When you start searching for companies you may have a lot of questions about what it is, how factoring is done, and even some terminology that is new to you. This guide can be your answer to all that you need to know about invoice factoring.
What does invoice factoring mean and how does it work?
Invoice factoring can be considered an incredible solution for businesses to get immediate cash flow instead of waiting for months until the client pays for the invoice.
Invoice factoring is a financing process that involves three parties, and these three parties are:
- The business owner
- The client who hasn’t paid the invoice
- The factoring company who will take the responsibility of collecting the money.
When you are a business owner who provides a service for clients you may find yourself financially struggling due to a number of clients taking more than 30 days to pay for their invoice. Choosing to factor unpaid invoices can provide your business with immediate cash that can be used for financial responsibilities and business growth.
Once you agree to factor unpaid invoices with a factoring company, you will not be responsible for collecting the money from your client, who can also be referred to as the debtor.
There are simple steps to learn how factoring invoices work and it is the following:
Step 1: Submit the unpaid invoices
The way invoice factoring works is by first submitting the unpaid invoice or a medical claim to the factoring company. The company will then review your invoices or claims to see if it should be approved.
Step 2: Verifying the services you provided
Once you submit the invoices to the factoring company, they will begin a process to confirm that you provided the services you are billing the client for.
Step 3: The factoring company will begin paying you
After you submit invoices and they get approved by the factoring company, you will get paid in two installment payments. The first payment will be a discounted rate of the total value of the invoices or claims, meaning that you will get paid 70% to 95% of the total amount of the invoices. That first installment you will receive within 24 hours of approval.
The second installment will be given to you when the factoring company collects the full payment from the clients whose invoices you factored or when the insurance company pays for the claims. The second installment will include a small percentage that the factoring company will take out to cover some fees such as the factoring fee.
For example, if you are factoring an invoice that is $10,000 you will receive $7000 as the first payment. The factoring company will then give the debtor about 60 to 90 days to pay for the invoice. The second installment will be the rest of the total amount of the invoice minus the factoring fee. It will be deposited to you when the debtor pays for the invoice.
What are the main types of invoice factoring and what’s the best choice?
There are two main types of invoice factoring and they are recourse factoring and non-recourse factoring.
Recourse factoring is the process of getting paid for selling your unpaid invoices while still carrying the responsibility if the debtor doesn’t pay the factoring company when they try to collect the money.
This means that you will get paid by the factoring company when you submit your unpaid invoices or claims, but you if the debtor can’t pay for any reason you will be obligated to return the money to the factoring company, give them another invoice to collect or have the money deducted from other invoices you sell to the company.
Recourse factoring is the most common choice for many companies, as it will cost you less money to sell the invoices compared to non-recourse.
Non-recourse factoring will free you from any responsibilities that you are carrying due to clients taking too long to pay for their invoices. When the factoring company agrees to give you the option of non-recourse factoring, you will keep the money you are given from selling the invoices to them even if they couldn’t collect the amount from the debtor.
While non-recourse factoring is a great choice to guarantee that you will keep the money, it will cost you more than recourse factoring. This option also has a lot of terms and many factoring companies won’t accept all invoices.
These two options are both beneficial for your business. When it comes to which choice is best, the decision will be up to you. Each business is different and it is important to look into recourse and non-recourse factoring to see which one fits your goal the most.
What are the most important factoring terminologies?
Invoice factoring companies use certain terminologies that you will see in your contract with them, as well as hearing company representatives say them constantly. In order to stay updated with the process and understand everything that is happening with your factoring account, you have to learn the most commonly used words in the invoice factoring industry.
- Accounts receivable: The money that is owed to you by a customer who received your services and hasn’t paid for the invoice you issued to them for more than 30 days.
- Advance: The amount of money that you will receive from the factoring company when they purchase the unpaid invoice from you.
- Advance rate: A percentage of the invoice that the factoring company will pay in advance, which will be 70% to 95% of the bill’s total value.
- Debtor: The customer who received services from your company but hasn’t paid for the invoice you are factoring.
- Client: The client who sells their invoices to the factoring company, which is different than the customer who is referred to as a debtor.
- Dispute: A term used to describe a debtor who does not pay for the invoice due to problems over the service they received.
- Spot factoring: When a business owner decides to have the freedom to factor invoices of their choosing.
- Factoring fee: The charge that a factoring company will include in the second installment payment to cover the work they have done to factor your invoice and collect the money from the debtor.
How can medical staffing companies benefit from invoice factoring?
Medical staffing companies provide a service for a large group of clients, and some of those clients will take a long time to pay. It is especially difficult when dealing with a client that pays through medical insurance companies, which are known for delaying the payment process after a claim is submitted.
Medical staffing companies need funding to continue growing in the industry and the lack of it can create big problems. Factoring invoices from slow-paying clients will protect your company from struggling to pay your employees, the bills, and any equipment you may need to continue growing your clientele list.
Factoring your invoices is the best way to receive a steady cash flow within 24 or 48 hours of getting submissions approved. Typically, it takes factoring companies 3-5 business days to approve invoices.
It will also protect you from harming your credit score, as factoring companies only check the credit history of the client who is responsible for the invoice. You will achieve financial security with invoice factoring that will allow you to recruit new employees, bring new clients, and grow your office space.