Barbara M., from North Carolina asked

How are my accounts receivable handled after the sale of my dental practice, and are they included in the purchase price?

1:29m video / 1 min read

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Today's topic: How are my accounts receivable handled after the sale of my dental practice, and are they included in the purchase price?

99% of the time the accounts receivable are NOT included in the purchase price and remain the property of the seller. Therefore, it needs to be determined how the seller will collect those receivables post-closing.

There are three common ways to handle accounts receivable after the sale:

1. The seller collects his or her own receivables after the closing. This is the least preferable method as it tarnishes the goodwill and seamless transition since the patients will now be receiving two separate invoices as they are being treated

2. The purchaser collects and remits the receivables to the seller, post-closing, for a predetermined period of time. The purchaser is allowed to keep a small percentage to cover the cost of billings, postage, and staff time for reconciliation and record keeping.

3. The purchaser buys the accounts receivable to use as working capital. There are two typical ways to purchase the accounts, one is a predetermined formula based on age, which is then applied to the final accounts just prior to closing; and the other is what is known as a "look-back" which involves a purchaser signing a promissory note for the full amount of the receivables at closing, and then adjusting that note based on actual amounts collected over a predetermined period of time.

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