A simple target for a Huntington, WV clinic is enough cash or available credit to cover about two months of payroll, rent and supplies, the period insurers can take to pay when claims slow. The right figure comes from the clinic's own claims aging report and monthly costs, not from a rule.
An article from Quillhaven Financial in Huntington, West Virginia on working capital for clinics waiting on claims: what a working capital line is used for, why a profitable clinic can run short, a two-month target, when to borrow and an invented four-provider clinic through a slow claims quarter.
What Is a Working Capital Line of Credit Used For at a Clinic?
A working capital line covers the clinic's regular costs, mainly payroll, rent and supplies, in the weeks between providing care and being paid for it. The clinic draws when claims are slow and repays when payments arrive, so the limit is available again for the next gap.
It is not meant for equipment or a build-out, which are better matched to equipment financing or a term loan. Keeping the line for short gaps keeps it available when claims slow down.
Working Capital vs. Cash Flow: Why a Profitable Clinic Can Run Short
Profit is measured when care is billed; cash arrives when claims are paid. A clinic can show a healthy profit on paper and still run short of cash if its receivables grow, for example when it adds providers, when a large payer slows down, or when claims are denied and resubmitted.
Growth makes it worse before it makes it better. A new provider is paid from the first week, but claims for that provider's visits take time to build and then to be paid, so each hire widens the gap for a while. The same happens when a clinic opens extended hours or a second site.
Working capital is the cushion between the two: cash and available credit against the bills due before receivables are collected. Health care and social assistance employers in Cabell County, WV paid $944.8 million in annual payroll in 2023 (County Business Patterns), and wages are the largest cost for most clinics, so payroll timing drives the cushion a clinic needs.
Two Months of Payroll and Rent: A Simple Working Capital Target
A practical target is the cash needed to run for two months if collections stalled: two months of payroll, rent and regular supplies. Some clinics hold that in cash; others hold part in cash and the rest as an undrawn line.
Illustration only, invented figures: a clinic pays $21,000 every two weeks, $6,500 in rent and $5,500 in supplies and other costs each month. With 26 payrolls a year, monthly payroll averages $45,500, so monthly costs come to about $57,500, and a two-month target is about $115,000 (our arithmetic).
The credit line page covers sizing a limit, and the interest calculator shows the cost of a draw.
When a Cabell County, WV Practice Should Borrow and When It Should Wait
Borrowing makes sense when the gap is temporary and the receivables behind it are real: a payer's system change, a new provider's claims building up, or a known delay. A line drawn for those and repaid when payments arrive is working as intended.
Waiting makes more sense when the gap reflects a lasting problem, such as rising denials, falling visits or a payer contract that pays less than costs. Borrowing then only delays the decision. A clinic in that position should fix billing or costs first and borrow, if at all, for a defined plan.
- Is the gap temporary and the receivables collectible?
- Would the clinic be able to repay within a few months?
- Is there a plan if collections stay slow?
- Has the cost of the line been compared with its alternatives?
An Invented Four-Provider Clinic Through a Slow Claims Quarter
Illustration only, invented figures: a four-provider clinic in Huntington, WV normally collects about $98,000 a month. In one quarter a payer change cuts collections by 35%, about $34,300 a month short (our arithmetic), for three months, while costs of about $57,500 a month continue.
Continuing the invented example, over the quarter the shortfall comes to about $102,900. The clinic covers the first month from cash and draws the rest on its line, then repays as the delayed claims are paid in the following months. An invented two-month cushion of about $115,000 would have covered the whole gap. These figures are not an offer.
The medical practice page and the working capital page cover the funding options in more detail.
By Quillhaven Financial · Updated
