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Irregular cash flow is a chronic condition with most medical practices. It doesn’t matter if you’re a sole practitioner or you manage an urgent care clinic or a large multi-doc group practice. The situation is worst for doctors and dentists that rely on insurance reimbursements for much of their income. Factoring accounts receivable can provide a timely, effective solution. It can be a reliable source of working capital.Working capital is the heartbeat of every medical practice. Every type of small business, for that matter. You need money for mundane things like paying your monthly bills. And you need money for exciting things like expanding your practice. If your practice is thriving, cash flow problems can be especially frustrating. You’re earning plenty of money, but where is it?

In most cases, your money is sitting in your accounts receivable files. You’ve billed out your services, but – as usual – you have to wait weeks or even months to get paid. Self-funded patients can be just as slow as insurers. Or worse. So your income is unpredictable. And that can really cramp your style. You can’t budget effectively. Or move quickly. Factoring accounts receivable can smooth your cash flow.


Years ago, small business owners were wary of accounts receivable factoring. They thought it was strictly a last resort. That it marked them as a “failing” business. Today, that’s not the case at all. Medical professionals and many other small businesses use this type of financing for very positive reasons.

With factoring, you sell you current receivables to a third party. They pay you most of the value up front, then they take over collections. They pay you the remainder after they collect. They hold back a portion, which is their fee. The amount they discount your receivables is called a “factor.” It varies from lender to lender. This simple system can be a very effective means to get cash quickly. And it gets you out of the collections business.

For medical practices, though, it isn’t quite so simple. The lender may decline to include individual patient receivables. They see insurance companies and the government as far less risky. That may be true, but legally Medicare and Medicaid can only reimburse you. Not a third party.

Plus, HIPAA compliance is critical. You have to protect patient confidentiality. This can be a concern with factoring accounts receivable. As I said, normally the lender collects directly from those who owe you money. But that means they would have to have access to patient personal information.

There are two ways you can solve these problems:

  1. You can use invoice discounting In this case, you continue to handle collections yourself. As money comes in, you would send it along to the lender, per your agreement. The downside of this is you’re still stuck with collections. That’s not the most productive use of staff time.
  2. You can set up a “lock box” account in your name to receive government reimbursements. The bank can regularly sweep the account, transferring funds to the lender. This method is usually used by medical practices.

Be aware that you can also use your receivables as collateral for ongoing borrowing. This is similar to factoring, but it is ongoing, rather like a line of credit. This may seem like a great plan. But there are serious potential negatives. Talk to us at UCS before you consider this.


Small business owners look to working capital loans for all sorts of reasons. It is a proven business management tool. As long as you borrow in the right way. At the right time.

Factoring accounts receivable can help sustain your practice:

  • Smooth cash flow
  • Get cash quickly to cover emergency expenses
  • Reduce risks associated with bad debt payers
  • Avoid going into debt

Factoring accounts receivable can help expand your practice:

  • Take advantage of unforeseen opportunities
  • Add people or equipment to serve more patients, in more ways

You can use factoring even if your practice has bad credit. It’s tough to keep up with monthly expenses when cash flow is always in question. When you’re late with payments, your business credit slips. It’s hard to get small business loans to make things right again. But with A/R factoring, your ability to repay is not relevant.


Of course you should be wary of factoring accounts receivable, just as you should with all small business loans. Factoring isn’t perfect:

  • It costs more than a traditional business loan
  • Your receivables dictates how much you can borrow
  • It might be harder for your practice to get other financing

Make sure selling your receivables won’t leave you short of the cash you need for daily operations. Otherwise, you’re just trading one problem for another.


The question is, how much time do you want to spend becoming a factoring expert? You chose med school. You devoted years to study and skill development. Your goal is to help people live healthier, happier lives. Not to become an authority on the finer points of lending.

You don’t do your own legal work, because you aren’t a lawyer. Likewise, teaming up with United Capital Source puts a wealth of business borrowing expertise at your fingertips. You can rely on your UCS account rep as a working partner. Someone who knows the inner workings of your practice. Who understands your goals. Someone who will give you professional, unbiased advice on factoring accounts receivable. And other types of medical practice loans. That’s exactly what you do for your patients, isn’t it?

So let’s talk now, when you don’t have you back against the wall. Part of successful practice management is financial planning. That includes strategic borrowing. With a solid understanding of your options, you will be able to make smart, timely decisions to grow your practice. Without missing a heartbeat. Or losing an opportunity.

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