Upstate survives NCFE factoring debacle
CLINTON, N.Y. - Upstate HomeCare is counting its lucky stars these days and working to get a new Buffalo location up and off the ground.
The Buffalo location - Upstate’s fifth - opened for business Feb. 1, about the same time the company untangled itself from a potentially ruinous factoring arrangement with National Century Financial Enterprises. NCFE filed for bankruptcy Chapter 11 bankruptcy, dragging with it a number of the companies it provided receivables financing to.
“We didn’t have any money coming in after October, but we did what we had to survive,” said Upstate’s COO Greg Lopresti. “Now we are out from underneath them and looking better than we have in six years.”
Factoring is where providers sell their accounts receivables in exchange for a cash advance. Typically, the factoring company will pay the provider between 75% and 90% of the A/R collectible value. Companies use factoring to improve cash flow, or, like Upstate, to pay for growth.
When NCFE filed Chapter 11, it stopped paying companies it had factoring arrangements with. Because, it takes time to contact payers and reroute the AR from to NCFE to the provider. In some instances, providers ran out of cash before the switch took hold and had to file for bankruptcy.
Not Upstate. The $8.5-million company started another banking arrangement and convinced its major manufacturers and distributors not to cut them off.
“We sent a letter and a copy of our P&P and all the news clippings on NCFE to all of our major suppliers - Medline, Buffalo Hospital, Cardinal Health,” Lopresti said. “They were awesome. They carried us.”
Upstate partnered with NCFE last May when Kemper Insurance decided to get out of the healthcare finance business. At that time, NCFE was a reputable firm with a triple bond rating.
“We got into bed with them and boy what a mistake that was,” Lopresti said. “A lot of companies didn’t make it. Not only did we make it, compared to what it could have been, we came out very well.”
Upstate now plans to fund its growth out of cash flow, which now drops 20% to the bottom line, and by lining up investors.
“We want to grow,” Lopresti said. “We want to be a big player. But we need money to do that and it’s not always easy.” HME