There is a version of this conversation that starts with the purchase price. That is the wrong version.
When you buy a medical practice, the accounts receivable sitting on the books at close can represent weeks or months of revenue already earned but not yet collected. Handle it wrong and you either leave money on the table, inherit a collection headache that was never yours, or blow up the deal over a number neither side fully understood. We have watched all three happen, sometimes on the same deal.
Here is how medical practice accounts receivable value actually works in an acquisition, and what it means for your deal structure, your SBA financing, and the cash you need to bring to the table.
What “Accounts Receivable Value” Actually Means in a Medical Practice
Accounts receivable value refers to the outstanding balances owed to a medical practice for services already rendered but not yet collected. Insurance claims sitting in a queue. Patient balances. Pending reimbursements from Medicare, Medicaid, or commercial payers.
But the number on the balance sheet is not the number that matters.
What matters is net collectible value. That is the amount that will actually land in a bank account after adjustments, denials, write-offs, and the slow grind of patient collections. A practice might show $400K in gross AR. The collectible portion might be $180K. That gap is not a rounding error. It is the difference between a seller who thinks they deserve a premium and a buyer who would be paying for something that will never materialize.
Why Gross AR and Net AR Are Not the Same Thing
Gross AR is what the practice billed. Net AR is what it can realistically expect to collect. Several things live in the gap between those two numbers, and understanding each one matters before you assign any value to the receivables.
Contractual adjustments. Insurance contracts require practices to write off the difference between billed charges and the contracted rate. If a practice bills $300 for an office visit but the Blue Cross contract pays $150, that $150 difference gets adjusted off. It was never real revenue. This is basic, but you would be surprised how many sellers quote gross AR as though every dollar is coming in.
Aging buckets. AR aged past 90 days collects at a significantly lower rate than current AR. Anything past 180 days is often worth close to zero depending on payer mix. When you pull an aging report, you want to see the bulk of the balance sitting in the 0 to 60 day column. If most of it is stacked in the 120-plus bucket, that is not an asset. That is a write-off waiting to happen.
Payer mix. A practice heavy in Medicare and Medicaid typically has thinner margins and tighter reimbursement windows. Commercial payers generally pay faster and at higher rates. The payer mix directly affects what the AR is worth, and it is one of the first things we look at in any medical practice deal.
Billing efficiency. If the practice has a backlog of uncoded or unbilled claims, that is a separate problem from collectible AR. Unbilled claims are not technically AR yet. They are a billing process failure that creates risk for the buyer. And frankly, if the billing operation is that disorganized, the stated AR number is probably optimistic.
How Medical Practice AR Gets Handled at Closing
There is no universal standard here. AR treatment at close varies by deal structure, and this is where a lot of first-time buyers get surprised.
The two most common approaches:
Seller keeps AR, buyer gets a clean start. The seller retains all pre-close AR and collects it post-close. You take over with zero receivables and start fresh. Collections on old claims often continue for 90 to 180 days after close. The seller either manages collections directly or hires a billing company to handle it.
This is the cleaner structure from a buyer’s perspective. You do not inherit the seller’s billing problems. You start Day 1 building your own AR.
AR is purchased as part of the deal. The buyer acquires the receivables at a negotiated discount to net collectible value, typically priced at 80% to 85% of net AR, sometimes lower depending on aging and payer mix. The buyer takes on collection risk in exchange for a lower overall price or additional working capital at close.
This approach makes sense when the AR is genuinely collectible, well-aged, and documented. It rarely makes sense when the aging report looks like a graveyard past 120 days.
So that covers the structural choices on AR. But there is a bigger picture here that first-time buyers often miss: AR treatment is just one piece of the overall deal structure, and deal structure is where the real value gets created or destroyed.
The Deal Structure Conversation That Surrounds AR
Medical practice accounts receivable value does not exist in isolation. It sits inside a broader deal structure that includes the purchase price, seller note terms, equity injection, SBA loan mechanics, and working capital requirements.
On the seller note: we push for full standby at 0% interest on the vast majority of our deals, and we get it on more than 90% of them. The seller note is not a last resort. It is a structural tool that makes the deal work for both sides. Meet the seller on price, win on terms.
On working capital: this is non-negotiable. You need 2 to 6 months of working capital available at close, and that number is separate from your equity injection. In a medical practice specifically, the credentialing gap alone (more on that below) can eat weeks of cash flow before a single new claim pays out. If you are not building working capital into your deal model, you are setting yourself up for a cash crunch in the first 90 days.
And on equity: yes, the SBA requires a minimum 10% equity injection, and that requirement is documented on SBA.gov. But 10% is the floor, not the target. We work to get buyers to a position where they can close with as little as 5% buyer cash out of pocket through proper deal structuring, including seller notes and other mechanisms. The point is not to minimize your skin in the game. The point is to structure the deal so the capital is deployed where it actually de-risks the acquisition.
How to Assess Whether the AR Is Actually Collectible
Before you spend time debating the price of AR with a seller, you need to know whether it is worth anything close to what they think it is.
Here is what to pull and review during diligence:
Aging report by payer. Get a breakdown showing what is owed, by whom, and how long it has been outstanding. Ask for this segmented by payer class: commercial, Medicare, Medicaid, and self-pay. Self-pay over 90 days collects at a very low rate in most practices. Almost nothing, in our experience.
Denial rates. Ask for the practice’s claim denial rate and re-submission rate over the last 12 months. High denial rates signal a billing problem that could suppress collectible AR and affect future revenue.
Collection rate benchmarks. A well-run primary care or specialist practice should have a net collection rate of 95% or higher relative to net charges (after contractual adjustments). If you see something in the 80s, dig into why. The answer matters.
Write-off history. Review the last 12 to 24 months of write-offs. Chronic write-off patterns tell you something about either the payer mix, the billing staff, or the physician’s willingness to pursue collections. Sometimes all three.
If the practice cannot produce clean, segmented AR data, that is itself a data point. Disorganized billing is a liability, not a neutral fact.
The SBA Angle on Medical Practice Acquisitions
SBA 7(a) loans are available for medical practice acquisitions, and we see them close regularly on practices in primary care, dentistry, specialty medicine, and behavioral health.
The underwriting process follows the same logic as any other acquisition: the lender wants to see that the business cash flow can service the debt at a comfortable coverage ratio. We target a 2x debt service coverage ratio. We will move forward at 1.5x when there are clear synergies or operational improvements with evidence behind them. Below 1.5x, the deal does not work. That is not a guideline. That is a wall.
Where medical practices sometimes get complicated on the SBA side:
Add-backs and SDE. Physician owners frequently run personal expenses through the practice, and those can be added back to approximate earnings. But here is the thing: seller discretionary earnings as a number is almost always inflated. It is a broker-friendly metric designed to make the practice look as profitable as possible. We discount SDE by 15% to 50% to get to real cash flow, depending on the practice and what the add-backs actually look like. If the buying physician is going to replace a physician employee rather than function as the owner-operator, the compensation structure changes further, and the lender adjusts the cash flow model accordingly.
Side note: this is also why proof of cash matters so much in medical practice deals. If the bank statements do not match the tax returns, the SDE number is fiction. We treat proof of cash as the gold standard. If it does not tie, walk.
Tangible assets. Medical practices tend to be light on hard assets relative to acquisition price. SBA lenders are comfortable with goodwill-heavy deals in licensed professional services, but the practice needs to show consistent, documented cash flow to support that goodwill value.
Accounts receivable treatment. If AR is being purchased as part of the deal, work with your lender upfront on how it gets characterized. Some lenders will include collectible AR in the total project cost, others will not. Knowing this before you finalize deal structure avoids surprises at the closing table.
If you are evaluating a medical practice and want to understand how SBA financing applies to professional services broadly, see our overview of SBA 7(a) for business acquisitions.
Common Mistakes Buyers Make With Medical Practice AR
Some of these seem obvious on paper. In practice, we see smart buyers make every one of them.
Paying face value for aged AR. Any AR past 90 days should be scrutinized hard. Past 120 days, assume a low collection rate unless you have a very specific, documented reason to believe otherwise. Paying book value for old receivables is paying for vapor.
Not building collection costs into the model. Even clean, collectible AR costs money to collect. Billing staff time, clearinghouse fees, potential bad debt. If you are acquiring AR, factor all of that in. The gross number minus those costs is what you actually net.
Confusing AR with a down payment substitute. Some buyers try to count expected AR collections as part of their equity injection calculation on an SBA deal. This does not work. Your equity injection must be seasoned, documented funds (per SBA requirements, documented on SBA.gov), not a projection of future collections. Not a maybe. A real number in a real account.
Skipping the payer credentialing review. If the purchasing entity changes at close (new LLC, corporate restructure), payer credentialing needs to be re-established. Some payers will not pay new entities for 60 to 90 days after credentialing. That gap creates a real cash flow hole right after close, and it needs to be planned for. This is exactly why working capital matters so much in medical practice acquisitions. The revenue does not stop, but the payments do, temporarily. You need cash to bridge that gap.
Treating SDE as gospel. We already covered this above, but it bears repeating here: SDE is a starting point, not an answer. Discount it. Verify it against bank statements. Then build your model off the adjusted number.
Medical Practice Accounts Receivable Value: What It All Comes Down To
The AR sitting on a medical practice’s books at closing is not a bonus. It is a negotiating point with a value that needs to be established, not assumed.
Get the aging report. Understand the payer mix. Know whether you are buying it or leaving it with the seller. And if you are acquiring it, price it based on what will actually be collected, not what was billed.
The practices that are genuinely worth acquiring have clean, current, well-documented AR. That tells you something about the whole operation, not just the billing department. And that is the kind of signal that makes us confident a deal can close and perform on the other side.
Frequently Asked Questions
What is the typical value of accounts receivable in a medical practice acquisition?
Net collectible AR in a medical practice typically trades at a discount to gross AR, often 50% to 70% of the gross balance depending on payer mix and aging. Current AR in the 0 to 60 day bucket may be worth 90% to 95% of net collectible value, while AR past 120 days is often worth very little. A proper aging report segmented by payer class is the only reliable way to assign an accurate number.
Does the SBA 7(a) loan cover accounts receivable when buying a medical practice?
SBA 7(a) loans primarily finance the business acquisition itself, including goodwill and hard assets. If accounts receivable are included in the purchase, they can be incorporated into the total project cost, but the structure needs to be documented clearly and approved by the lender upfront. The SBA program is not designed to function as an AR financing line, so the primary loan rationale must be the business acquisition.
Should I buy the accounts receivable or let the seller keep them?
For most first-time buyers, letting the seller retain pre-close AR is the simpler and safer approach. You take over the practice with a clean slate and do not inherit collection risk. Buying AR makes sense only when the aging is current, the payer mix is strong, and you are confident in your ability to collect. Either way, the decision should be made before the letter of intent is signed. Not negotiated at the closing table.
What is a good net collection rate for a medical practice I am considering buying?
A net collection rate above 95% relative to net charges is the benchmark for a well-run practice. Anything below 90% warrants a detailed explanation. The causes could range from poor billing processes to a high self-pay patient mix to unresolved payer disputes. Low collection rates are often a sign of broader operational problems that go well beyond billing.
How does payer mix affect medical practice accounts receivable value?
Payer mix is one of the most important factors in AR valuation. Commercial insurance payers generally reimburse faster and at higher rates than government payers. A practice with 60% or more commercial insurance revenue will typically show stronger AR collectibility than one dominated by Medicaid, where reimbursement rates are lower and payment timelines stretch longer. When assessing medical practice accounts receivable value, always review the aging report alongside the payer breakdown.
Thinking About Acquiring a Medical Practice?
Medical practice acquisitions require a specific kind of deal knowledge. Healthcare billing mechanics, SBA lender requirements for licensed professional services, credentialing gaps, working capital planning, and the AR issues covered in this article all have to be managed in parallel. Miss one and it cascades.
Regalis Capital runs a done-for-you acquisition advisory service. We find deals, structure the financing, manage SBA paperwork, and keep the transaction on track from LOI through close.
If you are serious about acquiring a medical practice and want a team that has worked these deals before, start here.