Calculating accounts receivable value

November 5, 2010

Learn how to figure out value of accounts receivable.

Q: My associate will be buying into the practice and into the accounts receivable (A/R). How do I calculate his A/R value?

A: A/R must be discounted to reflect both health plan reimbursement disallowances, and the decreasing value over time due to difficulty in collections of past due accounts. In other words, the historic collection ratio of the practice does not yet include a rate of uncollectable accounts at a particular point in time, as in a valuation at a particular date. Individual practice statistics can vary significantly by health plan-even more if capitation is involved-but industry data typically find that A/R fewer than 30 days are worth 95%, 30 to 59 days are worth 85%, and 60 to 89 days are worth 75%. Accounts more than 90 days old probably should be sent to a collections agency, which generally recovers 15% to 20%, on which the agency charges you half for its work; so value A/R more than 90 days at 10%. Remember to first subtract the associate's A/R if he is on a collections compensation model, because those A/R typically already belong to the associate. You might find it simpler to just keep and collect the A/R and let the associate rebuild his own.