Operating a Clinical Research Site in the Age of High Interest Rates


Minimizing the cost of financing receivables could be the difference between growth and decline.

Norman M. Goldfarb

Norman M. Goldfarb

Timely payment by study sponsors and CROs has been a serious, long-standing problem for study sites. Many study sites endure accounts receivables average collection periods exceeding 90 days after the date when costs were actually incurred, and that does not take into account holdbacks that may take years to collect on a long study.

Driven in part by high rates of inflation, the US prime interest rate increased from 3.25% in March 2020 to 8.5% in July 2023.1 Few study sites have the size and risk profile to be eligible for the prime rate, so must pay a substantially higher rate of interest.

Many study sites operate on low profit margins, so financing receivables severely impacts their ability to reinvest operating profits into technology, quality management systems, training and other ways to maintain and build the business. A single study cancellation, bad debt, dry spell, or other unforeseen event can put a financially fragile research site out of business.

The cost of capital

The cost of capital is the cost that a business incurs to finance its operations.2 It measures the cost of borrowing money from creditors or raising it from investors.

In a simple scenario, a study site may borrow money from its bank at a 10% interest rate. The study site’s cost of that capital is thus 10% per annum. Alternatively, the study site may sell stock (“equity”) to an investor. Equity financing is generally more expensive than debt financing because the risk is higher; for one reason, in bankruptcy, lenders have priority over investors. If a venture capital firm, for example, wants to see the value of its investments double every three years, that requires a rate of return of 26% per annum—the study site’s cost of capital from that investor. There is a menagerie of more exotic investment vehicles, e.g., preferred stock and debt convertible into equity, each with its own cost specific to the situation.

Another source of capital is the owner’s own funds. With this source of funds, the operative measure is opportunity cost, i.e., what would the owner do with the funds other than investing it in the business? (Alternatively, what would it cost the owner to secure the funds under their own name and then pass it along to the business?) For example, if the owner would otherwise invest it in ten-year US Treasury bonds paying 4.95%, the current interest rate, the cost of that capital is 4.95%.3

When a company looks for debt financing, it is faced with a wide variety of options, such as a term loan, a line of credit, receivables financing, and a mortgage secured by the study site’s building. Receivables financing sounds like the logical way to obtain cash based on open invoices but is also one of the most expensive ways because receivables are risky assets and, if a problem occurs, lenders do not want to be in the collections business.

If you were asked the cost of capital for your business, the standard answer would be a weighted average across all sources of capital. However, if you were asked the cost of capital for a specific transaction, a better answer may be the incremental cost of the capital required for that transaction. For example, if you finance the purchase of an automobile with a loan secured by that vehicle, the interest rate on that loan would be the most relevant cost of capital.

Study sites should take all the above considerations into account when assessing their relevant cost of financing receivables. The salaries of site personnel who chase down late payments can also be a significant cost, not to mention any write-offs of uncollectible receivables, or inflation’s impact on the real value of collections.4

Why many study sponsors and CROs pay slowly

Study sponsor and CRO clinical operations departments want happy, productive sites. They know sites value timely payments. Unfortunately, they may have little control over their finance departments.

Finance executives do not want to pay any vendor until they are certain the product or service has been properly delivered. In the case of clinical studies, that may entail a clinical research associate (CRA) reviewing and approving every single line item in every invoice. CRAs often have other tasks that they consider higher priority and certainly more interesting than reviewing invoices.

Accounts payable clerks want to process payments as quickly, accurately and efficiently as they can. However, because study site invoices are exceptionally complicated, they can be time-consuming to process. The last thing a typical accounts payable clerk wants to do is divert time to untangling complicated payment issues (even assuming they have that capability). In addition, accounts payable clerks are often hindered by problematic technologies and processes.

The study sponsor’s or CRO’s financial executives want to keep their clinical operations departments happy (along with all their other departments). However, from their point of view, the longer they can keep money in their own hands the better. Embarking on a costly and time-consuming project to install a new payment system that works well for clinical research and that will accelerate the process of draining money out of their bank account, assuming it even works as intended, is not exactly a high priority.

The impact of receivables financing on site profitability

Imagine a study site with revenues of $2 million, profits of $200,000 (10%), and an average three-month collection period after date of billable activity (effectively, $500,000 of receivables). At a 10% cost of capital, the cost of financing those receivables is $50,000 per year or 25% of profits. That is a big chunk of the funds that otherwise would have been available to sustain and grow the business, build up a rainy-day cushion, or even pay the study site’s owners a return on their investment. A site with lower profit margins, a longer average collection period, or a higher cost of capital faces proportionately larger financial challenges.

Minimizing the cost of financing receivables

Study sites can minimize their cost of financing receivables in the following ways:

  • Understand and plan your cash flows.
  • Utilize a suitable mix of capital sources based on usage, terms, costs and limitations.
  • Carefully manage cash, investments, debts and accounts payable.
  • Be attractive to sponsors and CROs so they will agree to relatively favorable payment terms.
  • Work with study sponsors and CROs that pay in a relatively timely manner; consider higher pricing for the others.
  • Negotiate favorable payment terms, e.g., monthly payments and, if you are in an especially optimistic mood, late-payment penalties.
  • Start an assertive, persistent and respectful collection process well before an invoice’s due date.


To stay competitive, study sites must invest in personnel, technology, quality management systems, training, etc. Given current interest rates, the cost of carrying substantial receivables may be the difference between healthy growth and a painful decline.

Norman M. Goldfarb is managing director of Elimar Systems, executive director of the Site Council, executive director of the Clinical Research Interoperability Standards Initiative (CRISI), and executive director of the Clinical Study Diversity Score Project (CSDS). Previously, he was chief collaboration officer of WCG Clinical, founded and led the MAGI conferences, and published the Journal of Clinical Research Best Practices.


  1. “Prime Rate History,” FedPrimeRate.com. https://fedprimerate.com/wall_street_journal_prime_rate_history.htm.
  2. “Cost of Capital: What It Is and How to Calculate It,” Lauren Saalmuller, 5/19/22, Harvard Business School Online, https://online.hbs.edu/blog/post/cost-of-capital.
  3. “10 Year Treasury Rate,” YCHARTS, https://ycharts.com/indicators/10_year_treasury_rate#:~:text=10%20Year%20Treasury%20Rate%20(I%3A10YTCMR)&text=10%20Year%20Treasury%20Rate%20is,long%20term%20average%20of%204.25%25.
  4. “United States Inflation Rate,” Trading Economics, https://tradingeconomics.com/united-states/inflation-cpi.
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