The Effects of Sequestration

With just days until March 1st, sequestration is on the forefront of most working people’s minds. Due to the failure of the government to come to a workable agreement on spending cuts, automatic across-the-board cuts are scheduled to come into effect two days from now. Many government programs and jobs will be impacted, as well as the businesses that work directly and indirectly with them. While exemptions from the cuts do exist, sequestration will have far reaching implications for industries like healthcare as well as business in general.

Sequestration and Healthcare

The healthcare industry has a lot to potentially lose from the $85 billion spending reduction due on March 1st. While Medicare cuts have been restricted to no more than 2% of the budget (unlike most programs at 4% or more), healthcare experts say that the cuts will cost the industry over 200,000 jobs. Government officials say that coverage for those under Medicare will not change, but providers like hospitals are facing a potential 27.4% reduction in Medicare reimbursement. This puts them in a tough financial position– hence the job losses. The largest share of provider cuts goes to hospital inpatient care, at 32%, while group plans, outpatient care, home health agencies and skilled nursing facilities make up the brunt of the rest.

Certain portions of Medicare are exempt from cuts, such as the Part D low income subsidies, catastrophic subsidies, and Qualified Individual premiums. Medicaid and Social Security are exempt completely.

Sequestration and Business

While healthcare looks to be impacted greatly, business in general will be hurting even more so. George Mason University economist Dr. Stephen Fuller estimates that in 2013 alone, sequestration will put 2.14 million jobs at risk. This includes over 950,000 small business jobs from government supplier companies as well as mom-and-pop stores that deal indirectly with government contracts. Companies with 500 employees or less are facing up to 45% of job losses in the coming year. He also predicts a decrease in personal earnings of $109.4 billion as well as a GDP reduction of $215 billion. In an already struggling economy, this bodes ill for the coming months and years.

Specific Effects

Here are some examples of how sequestration will affect specific industries:

Defense: The active military remains untouched, however, civilian Defense Department pay is expected to decrease by around 20%. 46,000 temporary and term workers will be laid off, and furloughs will affect the rest. Defense Secretary Leon Panetta has said that national security could be harmed as a result.

Education: Special Education grants and Head Start funding will be reduced, as well as federal child care assistance. Thousands of teachers, aides, and speech therapists will be affected, and low income children are expected to suffer the most damage. For higher education, federal financial aid programs such as work-study will be cut by about 8.2%.

Air Travel: Federal Aviation Administration employees would be furloughed by 11 days, hampering air travel around the country as less air traffic controllers and technicians will be on duty. Security will also be affected, and wait times could increase dramatically.

Housing: Low-income families could potentially lose 125,000 housing choice vouchers, and about 100,000 formerly homeless people will lose their current housing and go to the streets once again. Foreclosure prevention advice will also decrease as HUD counseling grants will be reduced by 75,000 families.


Without some sort of bipartisan miracle in the next couple of days, sequestration will soon become a reality. The meat cleaver approach seems like an inefficient way to reduce spending, but hopefully it will serve as a wakeup call for the government to put aside differences in order to do what’s best for the country. Businesses should do what they always do in tough times- prepare for the worst while hoping for the best. After all, one thing that can never be “cut” is the indomitable American spirit of enterprise.

UCC Article 9 Amendments: What Factors Need to Know

According to a Commercial Factor article, a bevvy of amendments to the Secured Transactions portion of the UCC code will become effective on July 1st, 2013, and will directly affect the factoring business.  While the changes are not drastic and are intended mostly for clarification, factors should be aware of the coming changes and how they will have to alter their operations to conform to the standards.

Debtor Name on Financing Statement: The rule as it is right now is that an “individual name” must be used on a Financing Statement, with no other guidelines. The 2013 amendment attempts to avoid confusion and improper filing by requiring that the name be as it appears on an unexpired driver’s license issued in the state the statement is in, or if they don’t have a driver’s license then it should the last name and first surname.

Perfection Rules: The existing law says that if there is a change of state for a debtor, there is a four month grace period to file a new Financing Statement in the new state. However, it does not apply to property bought between the move and the new filing. The amendment will change this exception.

Financing Statement Forms: The Financing Statement form has been modified in a few ways, including a removal for the field for social security numbers. Factors must be aware that some states might not accept the new forms without the SSN.

These are just a few changes to the rules, but will probably be the most pertinent to factors. It’s important to be up on new laws, no matter how insignificant, to avoid confusion and misfiling.

The Home Health Care Labor Law Debate

PRN Funding’s founder and president Phil Cohen recently published an article on the Factoring Investor detailing the current debate over home health care labor law. Despite the fact that PRN works with home care companies every day, the NPR article “Home Care Aides Await Decision on New Labor Rules” that describes the controversy came as a surprise.

The Current Law

Currently, 2.5 million home health care aides in the US are not required to receive minimum wage or overtime due to an amendment in labor law from 1974.

Instead, home care givers are treated legally like “adult babysitters” even though they provide an important and valuable service and typically work 12 hours a day or more and on weekends. Almost every other employee in the US receives minimum wage and overtime pay under the Fair Labor Standards Act (FLSA)– including nursing home workers, who perform the same kinds of tasks.

Changes in the Works

According to the article, the Obama Administration announced in 2011 that the law would be revised but has yet to make a formal approval for the changes. The new rule would ensure that home health care aides are guaranteed both minimum wage and overtime as prescribed by the FLSA.

The changes to the regulations are being proposed now because while the law has stayed the same for decades, the home health care industry has grown and transformed. 80 million baby boomers are aging fast and the home health care industry has more than doubled in the last eight years.

The Controversy

Just like with any issue, certain nuances make enacting the change less straightforward than it appears. While it seems logical that home care workers be treated like the rest of us, certain groups don’t want to see the law change because of unintended consequences.

Certain home care companies and trade groups like the National Association for Home Care and Hospice support paying employees at least minimum wage, but not overtime or weekends. The reasoning is that home care profits are mostly fixed by Medicaid, and the cost of overtime couldn’t be offset by a raise in price.

Another association that is concerned about the possible change is the disability rights group ADAPT. While they want workers to be adequately compensated, they cannot support the changes because the higher price tag means that people with disabilities most likely will have to find several attendants. This is disruptive and potentially dangerous for the residents who need consistency.

Implications For Factoring Companies and Brokers

For a factoring company or broker that deals with home care or staffing companies, a change in labor law has implications for business.

If the law is revised by the Obama administration, then home care aids will have to be compensated more by their companies. To counteract this, the companies will most likely restrict the number of hours that the employees can work, and look for more part-time workers—especially with Obamacare coming into full effect in 2014. Home care companies will have to change their business somehow to deal with the change in law, and change usually requires cash flow.

Factoring companies and brokers should be prepared to handle the changes to home care and staffing, and for brokers especially this requires having within your network a company that specializes in healthcare.

Health Data Going Digital, Industry Capitalizing

As hospitals slowly figure out how to make new digital health records work, companies that sell the systems are raking in the profits. Since the passage of the economic stimulus bill in 2009 that included health records legislation, large companies that lobbied for the provision have been hugely successful.

Opinion on the records systems themselves is split. Fans of the digitization argue that the system makes it easier to prescribe medications electronically and will end up saving hospitals money and improving care. Detractors, however, say that the systems are difficult to use, do not share information with other systems, and can increase the time doctors spend doing documentation that could otherwise be used with patients.

Factoring companies or brokers who deal with the medical industry should take notice of this new trend, as change in any industry has cash flow implications across the board.

For the full article, see  A Digital Shift on Health Data Swells Profits in an Industry

Options for Funding Working Capital Needs

Working capital is defined as current liabilities subtracted from current assets- aka, the current assets remaining after debts are taken into account. According to an Entrepreneur article called How to Determine Your Working Capital Needs, though, calculating what it means to your business is a little more complicated. They recommend using the operating cycle, or the time is takes for a sale to be paid. When companies have credit terms, this can be anywhere from 30-90 days and sometimes even longer when customers do not pay on time.

Financing the company in the interim can be a challenge, and most small businesses don’t have enough excess funds to do so. There are several options for getting short-term working capital, including but not limited to the following:


In this form of financing, a factoring company buys their client’s accounts receivable and advances 80-90% of the value up front. When the remainder is paid, they give back the rest less an agreed upon fee. Advantages of factoring are flexibility, speed of delivery, and reduced overhead by outsourcing the collections process. The main disadvantage is that it is relatively expensive compared to bank loans.

Line of credit

If the business is well financed and has good collateral, they may qualify for a line of credit that allows them to borrow funds when needed. The money must be repaid to the bank once the accounts receivable are paid in full. Advantages to having a line of credit are financing when you need it and that it is relatively cheap. A major disadvantage is that they have strict policies and not many small businesses qualify.

Short-term bank loan

For businesses that don’t quite qualify for a line of credit, it might be possible to get a small bank loan instead. The terms are usually less than a year, and can be provided for a large order or a seasonal inventory buildup. The advantage to a short-term loan is the low cost of financing, while the disadvantage is a lengthy and difficult approval process.

Overview of the Medical Supplies Industry

Without proper supplies, any venture will fail. This is especially true in the medical industry, where supplies are vital to good healthcare. While there is a shortage of doctors and nurses, there is no shortage of sick people in our aging population so the demand for supplies is ongoing and everlasting.

Globally,the  medical equipment and supplies industry has annual revenues of $273 billion and is expected to grow to $349 billion in 2016. Included is a vast array of products: catheters, monitoring systems, pumps, wound care, specialty bags, etc. Some key markets include surgical supplies at 45% of the market, with catheters ($32 billion) as a significant subset as well as patient monitoring systems ($9.3 billion) and wound care supplies.

The medical supply industry is expected to increase as the percentage of the elderly portion of the US grows by 146% from now to 2050. Technological innovation is also expected to impact the industry positively, as well as an increase in medical tourism and advertising of products directly to potential customers.

As medical supply companies grow, they need better cash flow to manage their resources. Factoring is a way to keep staff and bills paid so the company can focus on making excellent and innovative products to save lives.

For the full article, see Medical Equipment and Supply Industry: Market Research Reports, Statistics and Analysis

Medical Technology Reduces Error, Saves Lives

In any industry, communication is key- but none more so than healthcare, where it literally means life or death for patients every single day. The Institute of Medicine estimates that 98,000 people die every year from preventable medical errors, which would make it the 6th leading cause of death in America if the CDC counted the category.

According to the article The Clinical Connectivity Gap, breakdowns in communications systems are a common cause of medical errors. Many hospitals are starting to use technology like Bedside Medication Verification Systems that ensure caregivers deliver the right medication dosage at the right time. The use of technology greatly reduces unavoidable human error in dosage.

Another medical innovation that can reduce error is Electronic Health Records (EHRs), which are a systematic collection of health information about individual patients or populations. EHRs are still in their infancy but are being implemented more and more, despite a high cost. Starting in 2015, all hospitals will be required to use them or face penalties under Medicare.

As more hospitals implement technologies like EHRs and Bedside Verification Systems, costs are inevitably going to rise. Some may turn to factoring for cash flow financing, so factors should be aware of trends and changes within the industry.

Size of Staff Now Matters to 2014 Obamacare

While the Affordable Care Act doesn’t go into full effect until 2014, business owners should be aware that the size of their staff this year determines whether they are hit by penalties.

Most SBOs know by now that any company with over 50 full-time equivalent employees will be required to provide healthcare for their employees in 2014 or face fines. However, some aren’t aware that the government will be using staff data from 2013 to determine whether a company falls under the provision. According to the WSJ article Insurance Rule Will Go By Size Of 2013 Staff, this could change some SBO’s plans to change their staff next year. Rather than wait, they should make the changes this year while there is still time. A misunderstanding of the provision’s rules will have some companies blindsided with penalties in 2014.

Once business owners get wise to the rules, staffing in these companies may be rearranged and reorganized. Change often brings opportunity, and industries like temporary staffing will probably be the most affected.

2013 Factoring Conference

The 19th annual Factoring Conference, sponsored by the International Factoring Association, will take place this year on April 24th-27th at Miami Beach’s Fontainebleau Hotel. Below are some facts about the conference, which is sure to be a valuable experience where factors can learn new information and network with peers.

Speakers: There are many guest speakers lined up to talk on a number of subjects, but the two most eagerly anticipated speakers are Warren McDonald and Kevin Mitnick. McDonald is a world renowned mountain climber who also happens to be a double leg amputee, and Mitnick is a famous former computer hacker turned computer security consultant. McDonald’s “Challenge in Change” speech is scheduled for 9am on Thursday the 25th, followed by Mitnick’s “Art of Deception” at 11.

Accomodations: The conference will be held at the Fontainebleau beachfront hotel in Miami Beach, with rooms going at $269 per night at the Factoring Conference group rate. Register your room here.

Activities: There are many activities planned for the four day conference, including but not limited to: Golf Tournament, Portfolio Management, 5K Fun Walk for Charity, and an Everglades tour. See the full list of activities here.

Exhibitors: There will be over 40 companies exhibiting at the conference, and there is still time to register your company to exhibit as well. There are also sponsorship opportunities.

For the full website on the conference, go here.