A common question that dentists ask, before purchasing a practice, is if they would benefit from purchasing the accounts receivable. The answer will sound like it’s coming from a lawyer. It depends.
Making the decision to purchase accounts receivable depends on many factors. First and foremost the purchasing dentist needs to determine how effectively the selling doctor collected outstanding accounts. Consider how many accounts each year were deemed uncollectable. The purchasing dentist also has to pay careful attention to how many accounts are in the 90 days and older category. If much more than 10% of total accounts receivable are in the 90 days and older column, this may indicate the practice is not effective at managing receivables.
It is in the purchaser’s best interests to have a full collection history for each patient with a 90 day or older balance. Look closely at whether the patients have made regular payments on their balances.
The next consideration for a purchaser is whether or not to buy some or all of the accounts receivable. If accounts are managed well, it may make sense to buy everything. However, if some accounts appear uncollectable and/or if the team has not managed the accounts well, a purchasing dentist may want to exclude older balances.
Another consideration is to look closely at how the receivables are valued. Older accounts are worth less than current balances. Was the valuation done fairly?
Finally, purchasing accounts receivable has to be weighed against taking out a line of credit for immediate cash flow needs. Which option is more attractive? Which option fits better given the transition?
There are many things to consider about purchasing accounts receivable. Be sure to work closely with us to make sure you make the best decision for you.
Learn more about how we can guide a purchasing dentist through each phase of the transition.