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

When a dental practice changes hands, there is more to sort out than equipment, the lease, and the patient list. One area that often gets overlooked until late in the process is accounts receivable, meaning the money that patients and insurers still owe for treatment already provided. Deciding who is entitled to collect this money, and how it factors into the purchase price, can matter a great deal to both the buyer and the seller.

Below, we walk through how accounts receivable are often addressed when a dental practice is sold, and why this is worth discussing early in the negotiation.

Why Accounts Receivable Need Their Own Discussion

In many dental practices, a meaningful amount of revenue sits in accounts that have not yet been collected. This can include amounts owed directly by patients, as well as amounts pending from insurance providers. Because this money relates to work performed before the sale, it is common for buyers and sellers to treat it differently from the ongoing practice itself.

Some purchase agreements exclude accounts receivable from the sale entirely, meaning the seller keeps the right to collect what is owed. Others include a portion of the receivables in the purchase price, sometimes at a discount to reflect the risk that some amounts may never be collected.

Common Approaches in the Purchase Agreement

There is no single standard way to handle receivables, and the right approach often depends on what both parties negotiate. In some deals, the seller retains all pre-closing receivables and continues collection efforts after the sale, sometimes with the buyer's cooperation for a limited period. In other deals, the buyer purchases the receivables outright, often at a reduced value based on the age of the accounts and the likelihood of collection.

The agreement should generally be clear about which approach applies, what counts as a pre-closing versus post-closing amount, and who is responsible for pursuing collection if a patient or insurer does not pay.

Insurance Receivables Can Add Complexity

Dental insurance claims can take time to process, and some may still be pending on the date of closing. These amounts are often treated similarly to patient receivables, but tracking them can be more complicated because they depend on third-party insurers rather than the patient directly.

Buyers and sellers may want to agree on how pending insurance claims will be identified, tracked, and allocated, so there is less confusion about who receives the payment once it comes in.

Closing Adjustments and Reconciliation

Many dental practice sales include a closing adjustment process, where figures like receivables, prepaid expenses, and certain liabilities are reconciled shortly before or after closing. This helps make sure the final purchase price reflects the actual financial position of the practice on the closing date, rather than an earlier estimate.

Because receivables can change quickly as patients pay their accounts, it is common to set a specific cut-off date and method for calculating the balance owed, which is then reflected in the purchase price or a separate payment.

Due Diligence Matters Before You Agree to Anything

Before finalizing a purchase price, buyers generally want to review the practice's aging accounts receivable report, meaning a breakdown of how long amounts have been outstanding. Older receivables tend to be harder to collect, which may affect how much value a buyer is willing to assign to them.

Sellers, in turn, may want clarity on how long they can continue pursuing pre-closing receivables, and whether the buyer will assist with collection or simply forward payments received after closing.

Accounts receivable can represent a meaningful part of a dental practice's value, and how they are handled in a sale can affect the final numbers for both sides. Depending on the facts, receivables may stay with the seller, transfer to the buyer, or be split according to a formula set out in the purchase agreement.

If you are buying or selling a dental practice in Ontario, it is generally a good idea to have the purchase agreement reviewed by a lawyer before signing, so the treatment of receivables and other closing adjustments is clear to everyone involved.

Frequently Asked Questions

Q: Does a dental practice buyer automatically get the outstanding accounts receivable?

A: Not necessarily. Whether receivables transfer to the buyer, stay with the seller, or are split between them depends entirely on what the purchase agreement says. This should be negotiated and clearly documented before closing.

Q: How are unpaid insurance claims usually handled in a dental practice sale?

A: Pending insurance claims are often treated similarly to patient receivables, but because they depend on a third-party insurer, the agreement may need to address how these amounts are tracked and allocated once payment is received.

Q: Why would a buyer only pay a discounted amount for accounts receivable?

A: Older or aged receivables can be harder to collect, so buyers may value them at less than their full face amount to account for that risk. The specific discount, if any, is usually negotiated as part of the deal.

Q: What is a closing adjustment in a dental practice sale?

A: A closing adjustment is a reconciliation process used to make sure the purchase price reflects the practice's actual financial position on the closing date, including items like receivables and prepaid expenses.

Speak With DevLaws

If you have questions about the issues raised in this article, the team at DevLaws is here to help you understand how they may apply to your situation. Contact us to discuss the specific facts of your case.

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Disclaimer: This article is for general information purposes only and does not constitute legal advice. Every situation is different, and the outcome of any legal matter depends on the specific facts involved. If you have questions about your particular circumstances, you should speak with a lawyer.