Revenue Looks Healthy. Why Is Cash Still Tight?

A practice can report a healthy month and still feel cash pressure before payroll.

The apparent contradiction usually comes from timing. The practice records work, submits claims, resolves payer requirements, collects money, and pays expenses on different schedules. The income statement summarizes performance across a period. The bank account reflects what cleared by a particular day.

Owners need both views.

Keep five ideas separate

Use precise language in financial discussions:

1. Production: services performed, often valued using the practice's fee schedule
2. Charges: amounts submitted on claims
3. Allowed amount: the contracted or expected amount before patient and payer payment
4. Net collections: cash received after contractual adjustments, refunds, and other defined items
5. Cash available: money in the bank that can be used for payroll, vendors, debt, taxes, and owner distributions

Billed charges can increase without improving expected collections. Expected collections can improve while cash remains delayed in receivables. Cash can rise temporarily because payments arrive in a cluster. Each measure answers a different question.

Build a weekly cash bridge

Begin with the prior week's ending cash. Add expected receipts and subtract committed payments for the next 13 weeks.

Include:

• payer receipts based on recent payment behavior
• patient collections
• payroll and benefits
• rent, technology, billing, and recurring vendors
• medical supplies and drugs
• debt payments
• taxes and insurance
• planned capital spending
• owner distributions, shown explicitly

Use a base case rather than a hopeful case. Add a slower-collections scenario when the practice has concentration in one payer, a large drug or supply exposure, or a known disruption.

A 13-week view is short enough to update and long enough to reveal a difficult payroll, tax payment, or vendor commitment before it becomes urgent.

Reconcile cash to the care period

This month's deposits often pay for care delivered in prior months. Looking only at deposit date can make a strong collection month appear to validate the current schedule, even when current claims are aging.

Create a simple bridge:

Beginning receivables plus expected collectible value of new services minus cash collected and approved adjustments equals ending receivables.

Then separate receivables by payer, patient, service period, age, and status. A growing balance is not automatically bad if volume has grown. It becomes concerning when older balances grow, clean claims slow, denials accumulate, or one payer accounts for a disproportionate share.

Find what is absorbing working capital

Cash pressure usually has a specific operating source. Look for:

• claims held before submission
• authorization or documentation delays
• slower payment from a major payer
• patient balances collected too late in the visit cycle
• drug or supply purchases paid well before reimbursement
• payroll hours rising ahead of completed volume
• annual or quarterly expenses missing from the forecast
• owner distributions set without a minimum cash threshold

The answer should point to a process, timing decision, or financing need. A general instruction to collect faster gives the team nothing to change.

Set decision thresholds before cash is tight

Owners should agree on the practice's minimum operating cash and the actions triggered when the forecast approaches it. The threshold depends on payroll, fixed commitments, service mix, payer concentration, borrowing access, and owner risk tolerance. There is no universal number that fits every practice.

Possible staged actions include pausing discretionary spending, delaying an owner distribution, accelerating follow-up on a defined receivable segment, drawing on an approved credit facility, or revising a planned purchase. Decide the order before the practice is under pressure.

A one-week cash-visibility exercise

Ask the financial lead to build the first 13-week view with known payroll and vendor dates. Then connect the next four weeks of expected receipts to actual receivable categories rather than a flat monthly average.

Review five questions:

1. Which week has the lowest projected cash balance?
2. Which receipt assumption has the most uncertainty?
3. Which payer or service line creates the largest timing exposure?
4. Which payment can be planned differently without harming operations?
5. What event would trigger owner action?

Update actual cash and the forecast every week. Keep prior forecasts so the team can see where its assumptions were wrong. Forecast accuracy becomes an operating measure of its own.

The practice glossary defines net collections, days in accounts receivable, and overhead ratio. The companion article on busy practices with thin margins helps determine whether the cash issue reflects timing or weaker underlying economics.

If financial reports describe the past but do not show what decision to make next, the Operating Baseline creates a shared financial and operating view, a findings memo, and a 90-day plan.