What Dental Practice Buyers Should Ask About Collections
A seller can tell you the practice collects $1.3 million a year, and be telling the truth, and the practice can still be a worse buy than it looks. The collections number alone does not tell a buyer what they need to know. The questions behind it do.
Why Collections Questions Matter Most
When a dentist evaluates a practice to buy, the collections history drives the valuation. Most dental practice valuations are built on a multiple of collections or earnings, which means the collections figure is the foundation of the price.
It is also the number a seller can most easily present without the context that would let a buyer judge it. "The practice collects $1.3 million" is a true statement that can describe a healthy, stable, transferable practice or a declining, owner-dependent, leakage-prone one. The headline number is identical in both cases. The difference is entirely in the detail, and the detail only comes out if the buyer asks.
The questions below are the ones that turn a collections headline into something a buyer can actually evaluate. They should be asked directly, and the answers should be verifiable against the practice's actual records, not just accepted as the seller's representation.
Questions About the Collections Trend
Is collections growing, flat, or declining over the last three years?
A single year's collections figure hides the trend. A practice collecting $1.3 million this year after collecting $1.5 million two years ago is a declining practice, and the decline matters more than the current number. Ask for at least three years of monthly collections data and look at the direction.
How consistent is collections month to month?
A practice with steady monthly collections is more predictable and lower-risk than one with large swings. Volatility can indicate a lumpy patient base, dependence on a few large cases, or operational instability. Ask for the monthly breakdown, not just annual totals.
What explains any recent changes?
If collections moved meaningfully in either direction recently, the buyer needs to know why. A recent dip might be temporary or might signal a structural problem. A recent spike might be sustainable growth or might be a one-time event that will not repeat under new ownership.
Questions About Collections Quality
What is the collection rate, and how is it calculated?
The collection rate is the percentage of what the practice bills that it actually collects. A healthy practice generally collects 96% or more after contractual adjustments. But the buyer needs to know how the rate was calculated, because an aggressive write-off policy can inflate the apparent rate while the practice actually collects less. Ask to see the rate alongside total adjustments.
How does production compare to collections over time?
If production has grown but collections has not followed, the practice has a revenue capture problem somewhere between the chair and the bank. A persistent gap between production and collections is a warning sign of leakage, underpayments, or worse.
What is in the accounts receivable, and how collectible is it?
AR is often presented as an asset, but AR that will never be collected is not worth its face value. Ask for the AR aged by bucket and by payer, and assess realistically how much of it will actually convert to cash. Stale AR over 90 and 120 days should be valued conservatively.
Questions About Where Collections Come From
What is the payer mix, and how concentrated is it?
A practice heavily dependent on one or two payers carries concentration risk. If a major payer changes its fee schedule or drops the practice, the collections picture changes sharply. Ask for collections broken down by payer.
How much of collections depends on the selling dentist personally?
Some of a practice's production walks out the door with the seller, their personal patient relationships, their clinical specialty, their referral sources. Revenue tied to the selling dentist personally is not revenue the buyer is reliably acquiring. Ask what share of production comes from the seller versus associates, hygiene, and the practice's systems.
How much of collections comes from a few large cases?
A practice whose collections depends on a small number of large treatment cases is more volatile than one with broad, routine patient revenue. Ask how concentrated the production is.
Questions About Billing Practices and Risk
What billing patterns produce the current collections?
This is the question buyers most often skip and most need to ask. If the practice's collections depend on aggressive coding, upcoding, unbundling, or other patterns the buyer would not be comfortable continuing, then the practice's real, compliant collections are lower than represented. A buyer who corrects aggressive billing after closing will see collections drop. A buyer who continues it inherits the compliance risk.
Has the practice been audited by a payer, and what was the result?
A history of payer audits, recoupments, or disputes is material information. It can indicate billing patterns that will not survive scrutiny, and it can foreshadow liability the buyer would inherit.
Are there any marketing or referral arrangements tied to collections?
Arrangements that pay for patient referrals can implicate anti-kickback rules, especially for any government-program patients. A buyer needs to know about these arrangements and have them reviewed by a healthcare attorney before closing.
Verify, Do Not Just Ask
Asking these questions is necessary but not sufficient. The seller's answers should be verifiable against the practice's actual records. The core verification is the three-way reconciliation that underlies any sound pre-acquisition financial audit: comparing what the practice management system reports as collected against what actually reached the bank, and against what the payers' remittances say was sent.
When those three sources reconcile, the seller's collections representation is trustworthy. When they diverge, the divergence tells the buyer something the seller's reports alone never would. A buyer who asks good questions but accepts the answers without verification has done half the diligence. The other half is confirming the answers against the practice's real financial activity.
Frequently Asked Questions
What questions should I ask about a dental practice's collections before buying?
Ask about the three-year collections trend and month-to-month consistency, the collection rate and how it is calculated, how production compares to collections, the composition and collectibility of AR, the payer mix and its concentration, how much production depends on the selling dentist personally, what billing patterns produce the collections, and whether the practice has any payer audit history.
Why is the collections trend more important than the current collections figure?
A single year's collections figure does not show direction. A practice collecting $1.3 million after collecting $1.5 million two years earlier is declining, and the trend affects both the valuation and the buyer's risk. Always review at least three years of collections data.
How do I know if a practice's collection rate is real?
Ask how the rate was calculated and review it alongside total adjustments and write-offs. An aggressive write-off policy can inflate the apparent collection rate while the practice actually collects less total revenue, so the rate is only meaningful in context.
Can I trust the seller's collections numbers?
Not without verification. The seller has the strongest incentive to present the practice favorably. The buyer should verify collections through a three-way reconciliation comparing the practice management system, the bank deposits, and the payer remittances, rather than accepting the seller's reports at face value.
What billing risks should a dental practice buyer watch for?
Watch for collections that depend on aggressive coding patterns the buyer would not continue, a history of payer audits or recoupments, and marketing or referral arrangements that could implicate anti-kickback rules. Each of these can mean the practice's real compliant collections are lower than represented, or that the buyer would inherit liability.
Zeldent supports dental practice buyers with independent verification of a target practice's collections, reconciling the practice management system against bank deposits and payer remittances to confirm whether the seller's numbers reflect reality. Schedule a demo to see how Revenue Integrity protects an acquisition.
