Improve Working Capital in Your Clinic: Negotiate Better Payment Terms.

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Financial Basics

Sumit Pasalkar

June 1, 2025

Understanding the Impact of Payment Terms on Working Capital for Clinics

Introduction:

Running a successful clinic today isn’t just about providing good healthcare—it’s about managing money smartly.

And one often overlooked aspect of financial health in clinics is payment terms.

Whether you’re a solo doctor or managing a chain of diagnostic centres, the agreements you make with vendors, patients, and insurance companies directly impact your working capital.

In fact, poor payment terms can choke your cash flow, delay growth, and push your clinic to rely on small loans just to meet daily expenses.

For MSME businesses in the healthcare sector, especially in semi-urban and Tier 2/3 cities, understanding how payment cycles work is no longer optional. It’s essential.

In this article, we’ll break down:

What do payment terms really mean for clinics
How do they affect your working capital
The ripple effect on cash flow and loan dependency
And finally, practical strategies to protect your clinic’s financial health

Let’s dive in and learn how small tweaks to your payment terms can unlock big results for your clinic.

1. How Do Supplier Payment Terms Influence a Clinic’s Working Capital Cycle?

Payment terms from suppliers, whether 30, 60, or 90 days, play a direct role in shaping your clinic’s working capital cycle.

The longer the credit period your suppliers allow, the more breathing room you have to manage cash flow effectively.

Let’s break it down.

A. What Are Supplier Payment Terms?

When a supplier gives you 30-day terms, it means you can take delivery of medical equipment, medicines, or consumables today, but you’re allowed to pay after 30 days.

This deferred payment system is crucial for MSME businesses, especially in the healthcare space, where patient collections may take time.

B. Working Capital and Payment Terms: The Link

Here’s the connection:

Longer credit terms = More time to collect revenue from patients or insurance = Less strain on your cash reserves.

This improves your working capital position.

Instead of using your own cash upfront, you essentially get an interest-free small loan from the supplier.

Supplier Payment Terms	Impact on Working Capital
30 Days	Moderate cushion for collections
60 Days	Improved liquidity; better inventory control
90 Days	Strong buffer; allows patient billing cycles to settle

Real-Life Example

Suppose a clinic purchases ₹1,00,000 worth of diagnostic supplies.

If the supplier allows 60-day payment terms, and the clinic collects ₹1,50,000 from patients within 45 days, it pays suppliers with money already earned.

This cycle preserves liquidity and reduces the need to seek small loans.

In short, favourable payment terms delay outflow, giving clinics the financial flexibility to operate smoothly and invest in growth, without disrupting their working capital.

2. What Are the Risks of Short Payment Cycles for Clinics with Delayed Receivables?

For clinics, especially MSME businesses timing of cash inflows and outflows is everything. When suppliers demand short payment cycles (like 7 or 15 days), but your receivables (such as insurance reimbursements or patient payments) come in much later, your working capital takes a direct hit.

A. The Timing Mismatch

Let’s say your clinic has to pay its medical supplier within 15 days.

However, you receive insurance payouts 30 to 45 days after treatment.

This delay means you’re using your own limited cash or relying on small loans to bridge the gap. This creates negative working capital pressure.

Scenario	Impact on Working Capital
The supplier asks for a 15-day payment	But insurance pays you after 45 days
You pay out before receiving income	Working capital deficit grows
Forced to use cash or borrow	Increased cost of operations

B. Cash Flow Crunch: What It Looks Like

Inventory stalls: You can’t restock medicines or disposables until payments clear.
Salaries get delayed: Staff payments may be pushed back, affecting morale.
Emergency needs suffer: No liquidity for equipment repairs or emergencies.
You might borrow unnecessarily: You may need to take small loans at high interest rates just to stay afloat.

C. Risk Amplification for Smaller Clinics

Smaller clinics often don’t have deep reserves.

A single delayed insurance payment, combined with short supplier terms, can lead to a working capital crisis.

The result? Operational disruptions, vendor relationship strain, and even reputational damage with patients.

D. The Bottom Line

When payment terms are shorter than your cash inflow cycle, your clinic enters a risky zone.

Without proper planning or access to affordable working capital loans, this mismatch can snowball into bigger financial stress.

Clinics must negotiate realistic supplier terms or explore flexible credit solutions to keep their operations running smoothly.

3. How Can Flexible Payment Terms with Vendors Improve Cash Flow Stability in Small Clinics?

For MSME businesses like small clinics, managing cash flow is a daily challenge.

One effective way to stabilize your working capital is by negotiating flexible payment terms with your vendors.

This isn’t just about delaying payments, it’s about aligning your cash outflows with your actual income cycle.

A. Why Flexible Payment Terms Matter

When clinics get staggered or extended credit periods (like 30, 60, or even 90 days), they hold onto their cash longer.

This gives breathing room to manage operational costs, like staff salaries, utilities, and restocking supplies, without needing urgent small loans.

Example:

Suppose a clinic negotiates a 45-day credit line with its medical supplier, while it receives insurance reimbursements within 30 days.

That 15-day buffer improves liquidity and avoids cash crunches.

B. Types of Flexible Vendor Terms That Help

Term Type	How It Helps Working Capital
Staggered Payments	Breaks down large bills into smaller tranches
Extended Credit Periods	Aligns payments with revenue collection cycles
Buy Now, Pay Later (BNPL)	Instant supply access with deferred payment (ideal for MSMEs)
Vendor Credit Lines	Acts like an interest-free short-term loan

These options help clinics avoid using external financing, reduce dependence on overdrafts, and maintain a healthy working capital ratio.

C. Negotiation as a Cash Flow Strategy

Don’t underestimate your ability to negotiate. Long-standing vendor relationships often allow room for custom payment schedules. Vendors benefit too—they retain loyal customers and may even earn interest on staggered payments if structured that way.

D. Benefits at a Glance

Reduces the need for small loans or emergency funding
Improves predictability in monthly cash flow cycles
Enables strategic inventory planning without upfront pressure
Strengthens vendor relationships through reliable and consistent payments

4. Why Do Delayed Insurance Reimbursements Increase Working Capital Pressure on Diagnostic Labs and Clinics?

In India’s growing healthcare ecosystem, diagnostic labs and clinics are increasingly dealing with patients covered under insurance,

TPAs (Third-Party Administrators), or government schemes like PMJAY.

While these arrangements help boost patient footfall, they also introduce a serious strain on working capital, mainly due to delayed reimbursements.

How Insurance Delays Hurt Cash Flow

Most insurance claims take 30 to 90 days to settle.

During this waiting period, labs and clinics have already delivered services, paid for medical consumables, staff, electricity, and rent, but haven’t yet received the money.

This gap creates a cash crunch, especially for MSME businesses with limited buffers.

Example:

A diagnostic lab processes 200 PMJAY patients in a month, worth ₹4 lakh in claims.

The government takes 60 days to clear the payment.

Meanwhile, the lab still has to pay ₹2.5 lakh in salaries, ₹1 lakh for reagents, and ₹50,000 in electricity and rent.

Without incoming cash, they must either delay vendor payments or take small loans to survive.

B. Compounding Effect on Working Capital

Delayed receivables reduce available liquid capital, making it harder to pay suppliers on time, restock fast-moving tests or drugs, and invest in growth.

This prolongs the working capital cycle, tying up funds that could otherwise be used for expansion, equipment upgrades, or better patient services.

C. The Vendor Chain Breakdown

Insurance delays also affect supplier relationships.

When labs delay payments to reagent or equipment vendors due to blocked receivables, they often lose access to early payment discounts or face supply disruptions, worsening their operational efficiency.

D. Impact on Small Clinics and Labs

For small or first-time healthcare entrepreneurs:

They don’t have large reserves to absorb such shocks
They may rely heavily on a few big insurance-linked contracts
They are often forced to take working capital loans at higher interest rates just to survive
Their creditworthiness gets affected if payments to vendors or staff are delayed

5. What Are the Best Practices for Managing Payables and Receivables to Maintain Healthy Working Capital?

In clinics and diagnostic labs, poor handling of payments due and payments received can silently drain your cash reserves.

To maintain healthy working capital, MSME healthcare businesses must actively manage both payables (money owed to vendors) and receivables (money owed by patients, insurance, or TPAs) with precision and discipline.

A. Use Payment Tracking Tools

Implement simple digital tools like:

Tally / Zoho Books / Marg ERP – to track incoming and outgoing payments
Google Sheets with automatic formulas – for smaller clinics with fewer transactions
Clinic management software that integrates billing, inventory, and payments

These systems reduce manual errors, offer real-time visibility into pending payments, and help you forecast cash flow more accurately.

B. Automate Payment Reminders

Set up automated SMS, WhatsApp, or email reminders for:

Patient balances
Insurance claim follow-ups
Due payments to suppliers

This avoids delays caused by forgetfulness, builds payment discipline among patients, and ensures vendors are paid on time.

C. Patient Billing Discipline

Collect partial or full payments upfront for non-insured patients
Introduce digital payment options (UPI, credit card) at the point of care
Use clear terms like “payment within 7 days” for deferred payments
Follow up with patients after discharge or test completion in a structured manner

Small clinics that enforce billing discipline reduce receivable days and ensure smoother cash inflow.

D. Vendor Negotiation Tactics

Managing payables is just as important:

Negotiate longer payment terms (30–60 days) with trusted suppliers
Build loyalty with fewer vendors to secure better rates and flexible terms
Time payments based on your receivables cycle—don’t pay early if you haven’t been paid yet
Request bulk discounts or credit limits for recurring purchases like consumables

These negotiations protect your working capital and allow for better financial planning.

E. Monthly Reconciliation & Review

Once a month:

Reconcile receivables vs. payables
Identify high-risk patients or TPAs that delay payments
Flag vendors who charge penalties for late payments

This proactive approach helps you make decisions early whether to follow up, stop services on credit, or adjust inventory orders.

Conclusion: Managing Payment Terms to Safeguard Working Capital in Clinics

For small clinics, diagnostic labs, and MSME healthcare businesses, working capital is the fuel that keeps daily operations running.

From paying staff salaries to procuring medicines or maintaining lab equipment, cash flow plays a critical role.

However, poorly managed payment terms, both from suppliers and patients, can severely disrupt this cycle.

Clinics that agree to short payment cycles with suppliers while facing delayed reimbursements from insurance or TPAs often fall into a cash crunch.

On the other hand, those who negotiate flexible credit periods, use smart billing systems, and maintain discipline in receivables management tend to enjoy greater liquidity and financial stability.

In 2025, tools like Buy Now Pay Later (BNPL) for medical procurement, UPI-linked payment tracking, and automated invoice systems can offer relief.

But the real game-changer lies in strategic thinking, negotiating better terms, aligning payables with receivables, and digitizing the financial workflow.

By implementing the practices covered above, such as staggered payments, digital reminders, and real-time tracking, you not only reduce dependence on small loans but also create a self-sustaining financial system within your clinic.

And that’s the foundation for healthy growth.

Also Read,

Clinic Management, Financial Education, Healthcare Finance, Working Capital

Improve Working Capital in Your Clinic: Negotiate Better Payment Terms.

Understanding the Impact of Payment Terms on Working Capital for Clinics

Table of Contents

Introduction: