You need to enable JavaScript to run this app.
By Travis Yule — CEO & Founder, Full Send Funding
A claim is not an invoice — it is a request to be told what you will be paid. Gross charges, net collectable value, and the payer mix that decides both.
In one sentence: A healthcare claim is a request for adjudication rather than a receivable, so only net collectable value — what survives contractual adjustment, denial and patient responsibility — carries predictive content, and payer mix rather than aggregate ageing is the single most informative fact about the asset.
A healthcare receivable is not a receivable in the sense the rest of commercial finance uses the word, and the practical consequences of that difference are large enough to explain why well-run provider groups encounter liquidity constraints that their financial statements do not predict.
A commercial invoice is an assertion of a known amount owed by an identified party under agreed terms. A claim is something else entirely: a request for adjudication, submitted after the service has been rendered, evaluated against rules the provider does not set, subject to reduction by contract, to denial on grounds unrelated to clinical delivery, and to partial reallocation onto the patient. It becomes a determinate obligation only after adjudication concludes — which is to say, after most of the uncertainty that matters has already been resolved by someone else.
Everything below follows from that.
The first figure on a practice management report is gross charges, and it carries almost no information about cash.
Three distinct reductions separate the charge from the deposit, and they differ in kind rather than degree.
Contractual adjustment. Each payer agreement establishes an allowed amount by code. The difference between the charge and the allowed amount is extinguished — not deferred, not appealable, not subject to collection effort. It was never revenue in any economic sense, and a system that reports it as such is reporting an accounting artefact.
Denial and rework. A claim may be denied on eligibility, coding, medical necessity, timely filing, coordination of benefits or documentation. Some denials are recoverable on resubmission, some on appeal, some not at all. Each cycle consumes weeks, and the recovery rate declines with each iteration.
Patient responsibility. Deductibles, coinsurance and copayments transfer a portion of the obligation from an institutional payer to an individual. The distribution of collection outcomes on individual obligations differs materially from that on institutional ones, and no amount of process discipline closes the gap entirely.
What survives all three is net collectable value — the only figure with predictive content. Capital requirement, borrowing base, advance rate and enterprise value in a transaction all derive from it, and none of them derives from gross charges.
Contractual adjustments are written off rather than collected later — they were never revenue. Denials, rework and the patient-responsibility shortfall take more. A lender advancing against billed charges is overstating its collateral by the whole first step.
Illustrative, to show the shape rather than a benchmark: contractual adjustments, denial and rework leakage, patient-balance shortfall and advance rate all vary enormously by specialty and payer mix. Run yours.
The operational implication is that a principal monitoring charges is monitoring a series that moves for reasons largely unrelated to liquidity. A strong charge month and a strong collection month are different months, and the correlation between them is weaker than intuition suggests.
Standard accounts receivable ageing summarises across payer classes that behave nothing alike, which makes the aggregate figure close to uninformative and occasionally misleading.
A practice at 60% commercial and one at 60% Medicaid can show identical aggregate aging and hold completely different cash positions.
Each class carries a distinct adjudication cycle, a distinct denial profile, a distinct realisation rate and a distinct set of procedural rules. Two practices reporting identical aggregate ageing can hold materially different liquidity positions and materially different risk, and the difference is entirely attributable to mix.
Payer mix is accordingly the single most informative fact about a provider group's receivables, and it is the first disclosure any competent underwriter should request. It is also a source of exogenous variation: a significant employer changing carriers, a hospital contract lapsing, or a Medicaid redetermination cycle alters the cash profile of the practice without any change whatever in how the practice operates.
Credentialing and enrolment lag. A newly engaged provider generally cannot bill a given payer until credentialed and enrolled with that payer. Enrolment proceeds on the payer's timetable, separately for each, and is measured in months. The provider is compensated throughout.
Recruitment is therefore a capital event with an embedded delay of uncertain duration, and it is routinely modelled as though compensation and collection commence together. The variance between those two assumptions has closed practices. Some payers permit retrospective billing to the application date and many do not — a distinction worth establishing per payer in advance of the start date rather than in arrears of it.
System conversion. Migration of a practice management or electronic health record platform reliably interrupts claim submission: mapping defects, resubmission volume, and a backlog accumulating while workflow familiarity is rebuilt. The interruption is temporary and severe, and it is properly capitalised for in advance rather than absorbed as a surprise.
Contract renegotiation or termination. Moving out of network with a material payer alters mix, realisation rate and patient-responsibility share simultaneously. The revenue consequence is generally modelled. The timing consequence generally is not.
A conventional lender assessing a provider group frequently errs in both directions at once.
Advancing against gross overstates the collateral by the entire contractual adjustment, which on many payer mixes is the majority of the charge. A borrowing base constructed this way appears comfortable and is not, and the deficiency surfaces precisely when utilisation is highest.
Reading age as credit risk understates the asset. Healthcare receivables that appear aged and administratively untidy are frequently more collectable than commercial receivables of equivalent age, because the obligor is solvent and the obligation is contractual. Age here often signals rework rather than impairment, and those are different conditions with different expected outcomes.
Assessing the asset correctly requires reading it as the revenue cycle reads it — by payer class, by denial reason, by first-pass resolution rate. A lender lacking that capability will systematically overlend to some practices and decline others that are sound, and both occur routinely.
Advance against net collectable value. The discount is applied to expected collections by payer class rather than to billed charges. This is the analytically correct construction and the one worth specifying by name.
Medical receivables factoring. The receivables are sold rather than pledged. Notification arrangements are complicated by patient-privacy considerations and by payer rules governing assignment, so non-notification structures predominate — which means the funder relies on the practice's own process rather than on redirecting the obligor.
A revolving facility sized to the receivable base. Availability moves with the asset. The appropriate structure where the requirement genuinely revolves, and it rewards compression, since repaid capacity returns.
Revenue-based funding. Underwritten from deposits rather than the receivable ledger, which bypasses payer analysis altogether. Faster and less documentary, priced accordingly, and appropriate where the constraint is timing rather than a permanent borrowing base. The determinants — deposit consistency, average daily balance, negative days and existing obligations — are the same for a practice as for any other business.
Two questions distinguish a competent counterparty from an incompetent one: whether the advance is computed on gross or on net, and whether a denied claim under rework is treated as a collection failure or as an item still in process.
The least expensive capital available to a provider group is generally resident within its own revenue cycle, and financing an uncompressed cycle funds avoidable delay at an unavoidable price.
First-pass resolution rate — the proportion of claims adjudicated and paid on initial submission without rework — is the single most informative summary of how much of the delay is endogenous. Most practices have never computed it.
Denial concentration is high. Three corrections typically address a substantial share of volume, and each removes weeks from every subsequent affected claim permanently rather than transiently.
Eligibility verification before the encounter eliminates the most preventable denial category, and it is preventable only in advance.
Point-of-service collection of patient responsibility matters because the realisation rate on individual obligations declines sharply once the encounter has concluded and does not recover.
Working ageing by payer rather than by age reflects that the oldest bucket is not reliably the most recoverable: a forty-five-day commercial denial under active rework may carry a higher expected value than a hundred-and-twenty-day patient balance.
Only the residual — the genuine interval between expenditure and collection, computed by payer class rather than in aggregate — is properly a financing question.
Gross charges are not revenue: contractual adjustment, denial and rework, and patient responsibility separate the charge from the deposit, and only net collectable value carries predictive content for capital requirement, borrowing base or valuation. Aggregate ageing conceals payer mix, which is the single most informative fact about the asset and a source of variation entirely exogenous to how the practice is run. Credentialing lag, system conversion and contract change are liquidity events routinely modelled as operating events or not modelled at all. And a lender advancing against billed charges overstates its collateral by the whole contractual adjustment, while one reading age as impairment understates an asset whose obligor is solvent — which is how the same practice is simultaneously overlent to and declined.
Where the constraint is timing rather than a borrowing base, deposits are the faster route: $5,000 to $10 million against monthly revenue of $10,000 or more, from three months in business, decisioned within 24 business hours and funded within 24 hours of approval, on a soft credit pull only. No payer analysis, and no advance rate to argue about. See medical practice financing or dental practice funding, or call 518-312-0382 to discuss a specific payer mix.
The cascade chart is illustrative, chosen to show the shape rather than to benchmark it: $100,000 of gross charges reduced to a $55,000 allowed amount, $47,000 of net collectable value and a $33,000 typical advance. Contractual adjustments, denial leakage, patient-balance shortfall and advance rates all vary enormously by specialty and payer mix, and a practice should run its own. The payer-class table describes what drives lag in each class from the firm's underwriting of provider groups; it is practice, not a dataset.
No public benchmark for healthcare receivables by payer class is cited because none that fits the practices this site serves was found to be reliable. Where a figure is unknown, the article says so rather than supplying one.
Because a claim is not an invoice. A commercial invoice asserts a known amount owed by an identified party; a claim is a request for adjudication, submitted after service, evaluated against rules the provider does not set, reducible by contract, deniable on grounds unrelated to clinical delivery, and partially reallocatable onto the patient. It becomes determinate only after adjudication concludes, so a strong charge month and a strong collection month are different months and the correlation between them is weaker than intuition suggests.
What a receivable is worth after contractual adjustment, expected denial and rework leakage, and the realisation rate applicable to patient balances. It is the only figure with predictive content: capital requirement, borrowing base, advance rate and enterprise value in a transaction all derive from it. Gross charges overstate each of them, on many payer mixes by the majority of the charge.
Because payer classes carry distinct adjudication cycles, denial profiles, realisation rates and procedural rules, so an aggregate ageing figure summarises populations that should not be summarised together. Two practices reporting identical ageing can hold materially different liquidity positions attributable entirely to mix. Mix is also exogenous: a significant employer changing carriers or a Medicaid redetermination cycle alters the cash profile without any change in how the practice operates.
A newly engaged provider generally cannot bill a given payer until credentialed and enrolled with that payer, on the payer’s timetable, separately for each, measured in months — while being compensated throughout. Recruitment is therefore a capital event with an embedded delay of uncertain duration, and it is routinely modelled as though compensation and collection commence together. Some payers permit retrospective billing to the application date and many do not, which is worth establishing per payer before the start date.
They frequently err in both directions simultaneously. Advancing against gross charges overstates the collateral by the entire contractual adjustment, so a borrowing base appears comfortable and is not, and the deficiency surfaces when utilisation is highest. Reading age as credit risk understates the asset, because healthcare receivables that look aged are often more collectable than commercial receivables of equivalent age — the obligor is solvent and the obligation contractual, so age signals rework rather than impairment.
An advance against net collectable value, where the discount applies to expected collections by payer class — the analytically correct construction and worth specifying by name. Medical receivables factoring, predominantly non-notification because patient-privacy considerations and payer rules on assignment complicate notification, meaning the funder relies on the practice’s process rather than redirecting the obligor. A revolving facility sized to the receivable base. Or revenue-based funding underwritten from deposits, which bypasses payer analysis entirely.
Two questions distinguish a competent counterparty from an incompetent one. Whether the advance is computed on gross charges or on net collectable value, since the difference is frequently the majority of the balance. And whether a denied claim under active rework is treated as a collection failure that reduces availability, or as an item still in process. The answers indicate whether the lender understands the asset it proposes to lend against.
Cycle compression precedes capital, because financing an uncompressed cycle funds avoidable delay at an unavoidable price. Compute first-pass resolution rate, the proportion of claims paid on initial submission without rework, which most practices have never measured. Correct the concentrated denial reasons, since three corrections typically address a substantial share of volume and each removes weeks permanently. Verify eligibility before the encounter. Collect patient responsibility at the point of service. And work ageing by payer rather than by age, since the oldest bucket is not reliably the most recoverable.
Travis Yule founded Full Send Funding in 2021 and leads it from Middle Grove, New York. He writes about working capital from the underwriting side of the table — what the numbers actually have to say before a business gets funded.