What Happens to Accounts Receivable When a Medical Practice Is Sold?

In most medical practice sales, accounts receivable, commonly referred to as A/R, becomes a major discussion point because it sits somewhere between past performance and future cash flow. The services have already been performed, but the cash has not yet arrived.

That makes A/R different from many other business assets. A piece of medical equipment can be identified, inspected, valued, and transferred at closing. Accounts receivable is more complicated because its value depends on whether the balances are collectible, how old they are, who is responsible for collection, and whether the buyer is willing to assume the administrative burden. In many asset sales, the seller retains the accounts receivable.

Under this structure, the buyer purchases selected assets of the practice, which may include equipment, furniture, patient records where legally permitted, goodwill, phone numbers, websites, and other business assets. The seller then continues collecting payments related to services performed before closing. This approach is common because it creates a relatively clear dividing line between pre-closing and post-closing activity.

The seller keeps the revenue generated under the seller’s ownership, while the buyer receives the revenue generated after taking over the practice. Of course, medical billing rarely respects a perfectly neat closing date.

Claims may be delayed, denied, resubmitted, appealed, or partially paid. Patients may continue mailing checks to the office after the sale. Insurance companies may send electronic payments to an existing bank account. Someone therefore needs to determine exactly how those funds will be identified and routed after closing. The purchase agreement should address these details.

It may require the buyer to forward payments received on behalf of the seller, provide reasonable access to billing information, or allow the seller’s billing company to continue collection activity for a defined period. The parties should also determine who is responsible for appeals, corrected claims, refunds, and overpayments related to services performed before closing.

Sometimes the buyer purchases the accounts receivable along with the practice. When this happens, the buyer usually does not simply pay the full face value of the receivables. A/R is typically analyzed by age and collectability.

A balance that is 30 days old is generally more valuable than one that has been outstanding for 180 days. Some older balances may ultimately be written off completely. Buyers therefore often apply discounts based on aging categories or historical collection rates.

For example, receivables under 30 days may be valued relatively close to face value, while balances that are several months old may receive a much larger discount.

The exact methodology varies from transaction to transaction. The payer mix also matters. A practice with a large percentage of predictable insurance reimbursements may have receivables that are easier to evaluate than a practice with substantial patient-pay balances, disputed claims, or historically high denial rates.

Buyers should therefore review the A/R aging report carefully during due diligence.

A healthy aging report can tell a buyer a great deal about how efficiently the practice handles billing and collections. Large amounts sitting in older aging categories may indicate billing problems, poor follow-up, coding issues, credentialing problems, or simply weak revenue-cycle management.

That makes A/R more than a closing issue. It can also be an important indicator of the overall health of the practice. Sellers should review their receivables well before going to market.

Old balances that should have been written off years ago do not suddenly become valuable simply because the practice is being sold. Cleaning up the aging report can make the financial picture easier for buyers to understand and reduce unnecessary questions during due diligence.

The treatment of A/R can also affect working capital.

If the seller retains all receivables and the buyer begins collecting only on services performed after closing, the buyer may experience a temporary cash flow gap while waiting for new claims to be processed and paid. This is particularly important in practices with longer reimbursement cycles.

Buyers should plan for that gap rather than discovering it after closing. In some transactions, the parties may negotiate around this issue through additional working capital, seller financing, or another transition arrangement.

There is no single rule requiring accounts receivable to be handled one particular way in every medical practice transaction. The answer depends on the structure of the sale, the quality of the receivables, the buyer’s financing, payer requirements, and the negotiated terms of the purchase agreement.

The important thing is that both parties understand the plan before closing.

Accounts receivable may look like a line on the balance sheet, but in a medical practice transaction it represents real money, administrative responsibility, and potential risk. Addressing it early can help create a cleaner transaction and avoid the unpleasant situation of two parties arguing months after closing about whose check just arrived.