Accounts Receivable Management Can Materially Impact Practice Valuation

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A recent article from Medical Economics describes what a physician should do if they are looking to sell their practice but getting offers much lower than expected.

One factor may be the practice’s accounts receivable, or money patients owe the practice but the practice hasn’t collected yet. This amount plays a significant role in the valuation of a business.

In order to maximize the price of a practice, the owners must maximize their collection rate, or the “percentage of accounts receivable actually collected. Frequently, this rate does not factor in account receivables collected more than 90 days in arrears.”

Collection of co-payments is also part of a practice’s accounts receivable. Therefore, “failure to collect them not only results in noncompliance with state laws, but also lowers [one’s] overall practice collection rate.” Future owners of the practice may be hesitant to acquire the business if they feel patients will be reluctant to pay their copayment.

When looking to sell a practice, maximizing the collection rate of accounts receivable is crucial. If physicians aren’t receiving payment for services, the value of their practice could suffer.

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