How healthcare staffing agencies are financing payroll during rapid growth
COVID-19 has impacted virtually every industry, but none has faced bigger challenges than the healthcare industry. According to federal data, the sector has lost nearly half a million workers since the start of the pandemic, and as we move into year three, more than 1,000 hospitals across the U.S. are still reporting daily staffing shortages at critical levels.
The situation has created incredible opportunities for the global healthcare staffing market, which is expected to expand at a combined annual growth rate (CAGR) of five percent over the next four years. But the level of growth required to take advantage of those opportunities is creating new challenges. In this article, we’ll look at the top challenge healthcare staffing agencies are facing and how payroll factoring is helping them find new ways to scale up quickly.
The “Great Resignation”
Staffing agencies in every industry are facing difficulties in today’s hiring market. The Great Resignation—a trend that predates the pandemic—saw unprecedented numbers of dissatisfied workers leave their jobs. Years later, the trend is still in full swing, with a record 4.4 million American workers voluntarily quitting their jobs in February 2022.
Meanwhile, the number of available positions in the U.S. continues to rise, with February’s 11.3 million just shy of December 2021’s record of 11.4 million, according to the Bureau of Labor Statistics.
Healthcare staffing crisis
While many industries have struggled to hire during the pandemic, sector-specific challenges are amplifying the issues for healthcare. Nearly 20 percent of U.S. healthcare workers quit their jobs during the pandemic, according to a Morning Consult report from October 2021, adding to an already untenable skilled labor shortage.
Even more concerning, a September 2021 survey of more than 6,500 critical care nurses indicated that nearly 70 percent of respondents have considered leaving their profession. Additionally, a staggering 92 percent agreed with the statement that the pandemic had “depleted nurses at their hospitals.”
Work restrictions for healthcare professionals who test positive for COVID or who may have been exposed to the virus are also intensifying skilled labor shortages in healthcare.
Spiraling labor costs
Compounding these issues are the impact increased labor costs are having on the healthcare industry’s operating margins at many U.S. hospitals. According to KaufmanHall, the median month-over-month decline in operating margins (without federal CARES funding) in late 2021 was 12.1 percent, alongside a 2.7 percent month-over-month increase in labor costs.
The same report indicated that healthcare-related labor costs have jumped nearly 15 percent since October 2019, as nationwide labor shortages drive up labor expenses.
And although the healthcare staffing industry has received criticism for charging higher prices, the ongoing labor shortage means staffing companies must also pay higher wages to attract in-demand skilled labor. Median per-hour pay rates for ICT travel nurses, for example, have jumped more than 100 percent in two years (from $48 in 2019 to $99 in 2021).
Massive growth forecast
The elevated and ongoing demand for specialized workers in healthcare represents a massive opportunity for the industry’s staffing agencies. Indeed, the numbers show the healthcare staffing industry is booming in the face of unprecedented labor demand.
In the U.S. alone, healthcare staffing revenue grew by around $25 billion in 2021. Revenues have tripled since 2011, and staffing agency revenue from travel nurses alone was up 40 percent over the same period. Looking ahead to the near future, the global healthcare staffing market is expected to reach $47.8 billion by 2026.
Agency growing pains
While the future is bright for healthcare staffing agencies in terms of growth projections, the way the healthcare staffing industry is structured can make it challenging to scale up. Employment legislation (and market realities) mean that staffing agency payroll services must process workers’ pay without delay. Yet the agency isn’t paid for up to 90 days—or even longer.
This lack of liquidity is the single greatest barrier to growth for the healthcare staffing industry, preventing agencies from taking advantage of the opportunity to grow. Even with an excellent credit rating and a lengthy business track record, healthcare staffing agencies can struggle to qualify for business loans and lines of credit. For newer agencies, those financing options are simply out of reach.
At a time when healthcare staffing agencies are rich in opportunity but strapped for cash, payroll factoring (also known as invoice factoring) is becoming an integral part of the growth strategy.
Invoice factoring is a type of staffing funding that enables healthcare staffing agencies to turn customer invoices into cash immediately so that they can use it to fund growth. Because invoice factoring counts the value of unpaid invoices as collateral, it’s a form of staffing financing that is available to companies regardless of their credit histories or business track records.
It’s a less expensive and more flexible type of financing than merchant cash advances, which can include high-interest rates bundled with additional fees. It’s also an easier option than getting an online loan, which, in addition to charging high-interest rates, can restrict how a business uses the loan funds.
The advantages of invoice factoring for healthcare staffing agencies include:
- Receiving up to 95 percent of the cash value of any outstanding invoices
- Factoring as many or as few invoices as required, depending on the cash-flow needs
- Factoring invoices as a short-term remedy or long-term business strategy
- Receiving additional admin services (such as accounts receivable and collections management) that remove the burden from agency staff
Liquidity is the key
At AR Funding, we worked closely with healthcare staffing agencies throughout the pandemic to help them access the cash they need to stabilize and grow. Our clients tell us that while the worst of the pandemic may be over, the impact on the healthcare community will last for many years to come.
For healthcare staffing agencies, this means being able to react and adapt quickly in the face of fast-changing business realities. For the foreseeable future, strengthening cash flow and enhancing liquidity will be the key to continued growth and success.
To learn more about how your business can improve stability and flexibility through invoice factoring, please contact us today.