Healthcare Financing: Medical AR Factoring & ABL
If you bill insurance, your funding options are smaller and more specialized than you'd guess. If you bill businesses, the standard playbook applies.
Healthcare is two different funding worlds inside one industry, and the first question we ask is which side you live on. If your receivable is owed by an insurance company, Medicare, Medicaid, or a managed care plan, you are in medical AR factoring territory — a specialized product. If your receivable is owed by a hospital, a clinic, a distributor, or another business, you are in standard B2B factoring or ABL territory. The product fit, the pricing, and the lender universe are different. Medical AR factoring exists because of one structural fact: insurers will not assign payment to a third party. They have to pay you. So instead of a true assignment, the lender sets up a DACA — a deposit account control agreement — where the account is in your name but the lender has visibility and sweep authority. Advance rates are lower than commercial factoring, typically 65%–75% rather than 85%–90%, because insurance reimbursement is uncertain (the provider often collects 40–60 cents on the dollar of billed charges, and that variability has to be priced in). Pricing runs around 2% per month. The universe of lenders is small — out of roughly 700 factoring companies in the U.S., only 10–15 actually do medical. That scarcity is exactly why advisors matter here. Healthcare supply companies, home health agencies that bill private pay, medical device distributors, equipment providers — these run on standard commercial AR. The factoring product looks like staffing's: 85%–90% advance, lockbox, scaling line. Equipment financing covers capital purchases (imaging, infusion, mobile units, fleet) on 60–84 month terms at single-digit to low-double-digit rates. Larger healthcare supply businesses with inventory plus AR plus equipment usually graduate to ABL. The right move depends entirely on the receivable mix. We ask first, then recommend.
The cash-flow challenges healthcare & medical practices actually face
- •Insurance reimbursement timing — 30 to 90+ days from claim submission to payment, often longer for disputed claims
- •Reimbursement uncertainty — providers commonly collect 40–60 cents on the dollar of billed charges, which depresses advance rates
- •Medical factoring is a small lender universe (10–15 specialty lenders in the U.S.), making negotiation difficult without an advisor
- •Self-pay and private-pay receivables behave differently than insurance — sometimes financeable separately, sometimes not financeable at all
- •Equipment-heavy practices (imaging, surgical, mobile units) need capital that fits depreciation schedules and tax treatment
- •HIPAA and compliance requirements on lockbox and DACA structures add diligence time on the lender side
- •Practice acquisitions and roll-ups need bridge capital that traditional bank financing won't move fast enough to cover
What usually fits — ranked
Invoice Financing
For medical AR specifically, this is a specialized variant — DACA account instead of true lockbox, 65%–75% advance rates instead of 85%–90%, around 2% per month pricing. For non-insurance healthcare receivables, the standard commercial structure applies.
Asset-Based Lending
Fits healthcare supply, distribution, and device companies with multiple collateral types — AR plus inventory plus sometimes equipment. Prime + 1–5% pricing once you clear the $3MM facility threshold.
Equipment Leasing & Financing
Imaging, infusion equipment, mobile units, and fleet on 60–84 month terms at single-digit to low-double-digit rates. Sale-leaseback is the standard move to extract equity from equipment you already own.
Working Capital Loans & Lines of Credit
Revenue-based capital for practices where the AR is too small or too self-pay-heavy to factor. Sized at 10%–15% of annual revenue, funded in days.
Subordinated & Unsecured Credit
Bridge and sub-debt for M&A timing gaps in physician group roll-ups and dental support organization (DSO) consolidations. 6–36 month interest-only structures.
How this plays out in practice
A healthcare equipment supplier doing $6MM in annual revenue carries about $850K of AR on net-45 to net-60 terms with hospital systems and surgical centers (commercial receivables, not insurance). They also hold roughly $700K in inventory at cost — proprietary disposables and a handful of consigned units at customer sites. The bank line is $400K and capped. They have one large new customer (a regional hospital network) waiting on a $1.2MM PO that will ship in tranches over six months. The structure is a $1.5MM AR-based facility at an 88% advance rate, plus a $500K inventory sublimit at 50% advance on finished goods at cost. Pricing comes in around Prime + 3.5% on the AR portion. To bridge the production cycle on the hospital network PO, we lay in a separate PO financing facility that pays the manufacturer directly for 80% of the cost — settled when the invoice gets factored into the AR line on shipment. The outcome: working AR availability roughly triples versus the old bank line. The new hospital network contract becomes deliverable because production cash is now sourced. Twelve months later, with the supplier at $9MM in revenue, the whole stack rolls into a single ABL facility at Prime + 2%.
Public case study: Total Working Capital — $3.1MM
This medical device manufacturer, headquartered in Central Florida, was referred to Serve Funding by a banker after narrowly missing the bank's debt service coverage ratio requirements.
See full case study →How Michael thinks about healthcare & medical practices
“There's only a handful of companies that do medical receivables factoring because it's trickier. There's probably 700 factors in the US and maybe 10 or 15 of them do medical. That's how specialized it is. Insurances won't do what's called an assignment. They won't pay another third party. They have to pay you directly. So they set up typically what's called a DACA account, the control account where the lender has visibility and sweep, but it's still in your name.”
— Michael Kodinsky, Founder of Serve Funding · Mike explaining medical factoring on the Daryl Wakefield call — the cleanest articulation of why medical AR is its own specialty.
“You'll have an advance rate, obviously, of, could be 65, 70%. It's on the lower side of medical because, as you know, you get paid oftentimes 50 cents on the dollar.”
— Michael Kodinsky, Founder of Serve Funding · Mike on the structural reason medical advance rates run lower than commercial factoring.
“We're here to serve is our mantra. That's kind of a biblical nod to a servant leadership approach that we take to the way we operate.”
— Michael Kodinsky, Founder of Serve Funding · Mike on the philosophy that drives Serve Funding — particularly relevant in healthcare, where the lender universe is small and prospects often arrive frustrated after being shopped to the wrong specialty.
What doesn't usually fit (and why)
Half of being useful is being honest about what doesn't work. These are products we generally don't recommend for healthcare & medical practices — and the reason.
PO funding finances inventory production against a hard purchase order from a business buyer. Insurance claims do not work that way — the receivable doesn't exist until the service is rendered.
SBA can fit healthcare practice acquisitions, but it's a 4–12 week underwrite that we usually refer out. For working capital timing in a live practice, faster non-SBA products almost always make more sense.
