Arrange Practice Credit Before Collections Fall

Plan for the billing disruption, the credit conditions and the cash needed to recover

By Paul Sigrist, Managing Partner | Woodstock CFO Consulting

A busy practice can still run short of cash

One pattern we see in small, privately owned healthcare practices is particularly frustrating for the owner. Patient volume and patient mix remain fairly steady, yet collections and cash decline for two consecutive months. The practice is still doing the work. Less of that work is turning into cash.

That is a reason to investigate billing promptly, not proof that the biller caused the decline. We would compare visits with claims submitted, unpaid claims and actual receipts, then ask where the process changed. Payment timing and other explanations still need to be checked.

In our experience, that investigation sometimes reveals a billing team without the skills the practice needs. We also encounter smaller accounts receiving less attention than a billing company's larger clients. Replacing the biller may be the right decision, but making that decision does not immediately restore the cash.

The transitions we encounter can involve roughly 30 days to identify a replacement, another 30 days to offboard the existing biller, and more time to onboard the new team and improve collections. We plan around approximately 90 days of cash pressure after identifying the deficiency. The timing varies and can be longer. For an owner running two or three locations, payroll and facilities still need funding throughout the repair.

We have seen owners reach that point and face more expensive borrowing, additional personal exposure or the need to seek personal credit. Starting the banking conversation while finances are healthy gives us time to evaluate options. It does not guarantee approval, better pricing or freedom from a personal guarantee.

Test whether the line will work when billing does not

An approved limit is only the starting point. For an asset-based line, the OCC describes available borrowing as generally the lower of the contractual commitment or the borrowing base, less existing debt; minimum-availability requirements can reduce it further. Eligibility rules may exclude aging, unbilled or otherwise unacceptable receivables. Those rules vary by agreement. [1]

This creates an important risk for a practice using a receivables-based facility: the same billing problem can reduce incoming cash and reduce the credit available to replace it. More outstanding claims do not necessarily mean more borrowing capacity. We would ask the lender to run the proposed disruption through its actual eligibility rules before relying on the line.

Medical receivables also deserve their own underwriting conversation. For the receivables-backed structures it covers, the SBA Working Capital Pilot guide caps advances on medical-insurance receivables at 40% without prior written SBA approval, versus its general 85% ceiling for eligible domestic receivables. These are program-specific limits, not market-wide advance rates or promised financing. [2]

An unsecured line may avoid a receivables borrowing base without making access unconditional. Wells Fargo advertises BusinessLine with no annual review, yet its published agreement allows reduction or closure without notice, subject to law, even without a default. This is one product example, not a prediction of what a lender will do. [3] [4]

The conversation should therefore cover what can change the usable limit, when renewal falls due, what financial conditions govern draws, and which reports must remain current. If the biller or system cannot produce the required information, who can? A well-priced line that cannot be accessed during the anticipated problem may leave the practice with the wrong protection.

Size the gap through recovery, not just the restart

For a practice with annual revenue of five million dollars or less, a useful starting point is a weekly cash forecast extending through the expected disruption, catch-up collections and repayment. Include payroll, facilities, taxes, existing debt, transition costs and the financing cost itself. Project when receipts will actually clear, rather than spreading monthly revenue evenly across the calendar.

Project each week’s closing cash from opening unrestricted cash, expected receipts and all outflows. The additional funding need is the largest amount by which that path falls below the operating cash floor we agree the practice needs. Compare that need with dependable undrawn credit. The floor is a planning choice, not a demand to immediately accumulate the full desired reserve. Test slower recovery too.

One distinction changes the borrowing decision: normal collections resuming does not necessarily recover the cash already missed. If restored receipts merely cover current costs, there is no surplus to reduce the line. The repayment plan must identify catch-up collections, a sustainable operating surplus or another explicit source of capital. A forecast ending when the new biller starts can miss the most important part of the recovery.

Avoid counting the same resources twice. Expected claim receipts belong in the weeks they are likely to arrive; they are not extra liquidity to add on top of that forecast. For a borrowing-base line, update eligible receivables, outstanding debt and any required repayment as collections occur. Cash pledged to support a facility is not also an unrestricted reserve. The cash plan and the credit calculation need to tell the same story.

This approach follows the underlying lending discipline: FDIC guidance ties loan structure to the timing of expected cash flows and considers performance across a reasonable range of future conditions. Our application is to test the billing transition and recovery together, rather than select a line solely as a percentage of annual revenue. [5]

Separate delayed collections from revenue that may not return

Before treating a backlog as the repayment source, separate claims likely to pay on an identifiable timetable from claims requiring correction or appeal, and from amounts unlikely to be recovered. Review the net collectible amount, not simply gross billed charges. Payer concentration matters too: several apparently separate claims may all depend on resolving the same payer problem.

Filing deadlines make this more than a timing exercise. CMS generally requires Medicare claims to reach the correct contractor within one calendar year after service and denies late claims, subject to limited exceptions. Other payer requirements must be checked individually. A billing transition should preserve submission evidence and identify approaching deadlines, rather than assume the new team can recover every old balance. [6]

That distinction affects both the amount we are comfortable borrowing and the corrective action. A collectible backlog can support a bridge. Probable write-offs leave a permanent cash loss that needs a realistic funding and repayment plan. Borrowing may still be part of the response, but describing the whole problem as delayed collections would conceal the risk.

Choose the cash-and-credit mix deliberately

We regularly encounter small practices with less than 30 days of operating cash. If that describes your practice, start with where you are. We often work toward 30 days, then 45, then 60, with a 12-to-24-month build appropriate for some practices. The pace and eventual cushion need to fit the practice; these are WCC planning targets, not industry norms or a promise that 60 days covers every disruption.

Retained cash ties up capital that could otherwise be distributed or invested, but an unrestricted reserve does not depend on a fresh borrowing decision. A line preserves flexibility while bringing contractual conditions and costs. The useful comparison is the cost of keeping options available against the consequences of having too few options when payroll comes due.

Zero borrowing does not necessarily mean zero cost. Wells Fargo currently lists annual BusinessLine fees after the first-year waiver and requires personal guarantees even though the product is unsecured. Its secured Prime line uses a different fee structure. These examples illustrate why the actual offer matters; “unsecured” does not automatically mean no owner exposure. [3] [7]

Ask for the annual cost with no draws, the cost under the forecasted draw pattern, any reporting or renewal charges, and the guarantees or assets committed. Compare that with the cash the practice can reasonably retain. The cheapest quoted rate alone cannot tell us which combination will be more useful during the disruption.

Know what will bring the balance down

A balance that does not quickly return to zero deserves investigation, but does not by itself prove the practice is losing money. FDIC distinguishes short-term working-capital lines from revolvers financing permanent working capital and recognizes converting some balances to an orderly term-repayment schedule. [8]

We would distinguish a temporary backlog from a profitable practice now supporting a permanently larger receivables balance, and from an operating deficit that persists after collections normalize. Those are different financing decisions. The practical test is whether the repaired operation can fund current obligations and support a credible repayment plan. If it cannot, more credit alone will not resolve the underlying problem.

Suppose a particular borrowing arrangement requires a $4,500 payment: $3,700 principal and $800 interest. All $4,500 leaves the bank; principal reduces the loan balance rather than becoming a profit-and-loss expense. This is an illustration, not a standard payment structure for every line. The cash forecast needs the actual payment schedule, including any maturity balance.

Principal repayment is not itself a tax deduction. Business interest may be deductible subject to applicable rules and limitations; the practice’s tax adviser should confirm treatment. The financing decision should work on its cash merits, rather than depend on an assumed tax benefit. [9] [10]

The owner's next move

Bring the next banking conversation a credible billing-disruption forecast, a realistic view of collectible receivables and the proposed credit terms. Ask: how much could we still draw during this disruption, what must we provide to draw it, and what will repay it? Agree on a manageable reserve-building step alongside that discussion. Arranging credit early gives the practice time to answer those questions before an emergency narrows the choices.

Sources & Notes

[1] OCC. Asset-Based Lending, pp. 17–18 and 73 (accessed October 15, 2026).

[2] U.S. Small Business Administration. Working Capital Pilot guide; domestic receivables advance rates (accessed October 15, 2026).

[3] Wells Fargo. Business lines of credit; BusinessLine disclosures (accessed October 15, 2026).

[4] Wells Fargo. BusinessLine agreement, sections 12–13 (accessed October 15, 2026).

[5] FDIC. Underwriting Standards for Small Business Loans (accessed October 15, 2026).

[6] CMS. Medicare professional billing: timely filing (accessed October 15, 2026).

[7] Wells Fargo. Business line of credit fee FAQ (accessed October 15, 2026).

[8] FDIC. Commercial and Industrial Loans, p. 1 (accessed October 15, 2026).

[9] Chase for Business. Are your business loans tax deductible (accessed October 15, 2026).

[10] Internal Revenue Service. Topic 505: Interest expense; Publication 334 (accessed October 15, 2026).