The A/R number a buyer will not accept
Diligence does not argue with your receivables. It just stops believing them.
That is a much worse outcome than an argument, because you cannot negotiate with someone who has simply declined to count something.
What a quality of earnings process does
A buyer’s accountants are not auditing you. They are building their own version of your numbers and seeing how far it lands from yours.
On receivables the method is mechanical. They take the A/R balance at a date that has fully run — usually twelve months back — and they look at how much of it was actually collected in cash in the following six months. Whatever was not collected did not exist.
Then they apply that collection rate to the current balance. If your twelve-month-old A/R collected at 68 percent, they will carry your current A/R at 68 percent, and nothing you say about how this year is different will change it, because they have your own history in front of them.
The same treatment goes to anything they cannot tie to a source. A receivable that does not reconcile from the practice management system to the general ledger to the remittance is not a receivable to them. It is an unexplained difference, and unexplained differences get valued at zero.
What that costs
Illustrative arithmetic, not a client engagement.
And it does not stop at the receivable. If the practice sells on a multiple of EBITDA, a reconciliation that also restates revenue moves the multiple, not just the working capital line. A $60,000 revenue restatement at a 5x multiple is $300,000 of purchase price, on top of the $157,500 of receivable.
Why after the LOI is the expensive time
Before the letter of intent, a reconciliation is housekeeping. You find the differences, you fix them, you write off what needs writing off, and you spend the next two quarters building a collection history that supports the number you are going to claim.
After the letter of intent, the same work is a renegotiation. Every correction you make lands in front of a buyer who has already formed a view, and corrections that reduce the number get accepted immediately while corrections that increase it get scrutinised for weeks. The asymmetry is not unfair — it is just how the incentive runs — but it means the work is worth less at exactly the moment it becomes urgent.
There is also a timing problem. The collection-rate test looks backward twelve months. You cannot retroactively collect better. If you want a buyer to credit 85 percent of your receivables, the year that proves it has to have already happened.
What “reconciled” actually means here
Three ties, all of which have to hold at the same date.
Claim-level detail in the practice management system ties to the A/R control account in the general ledger. Cash applied in the system ties to deposits in the bank. Contractual adjustments in the system tie to the contra-revenue account in the ledger.
Most practices can do the first one within a few thousand dollars and cannot do the other two at all, because payments get applied in bulk and adjustments get booked as plugs. The bulk application is what turns a $41,000 difference into a three-month project, because unwinding it means going back through remittances one at a time.
If you are not selling
This still matters, just more slowly.
The same test a buyer runs is the test a lender runs on a line of credit secured by receivables, and it is the test you should be running on yourself before you make a distribution. Twelve months back, how much of that balance turned into cash. If the answer is 68 percent, then two-thirds of your A/R is an asset and one-third is a habit.
Five checks you can run this week
1. Take the A/R balance from twelve months ago and trace what was collected against it in the following six months. That percentage is the number a buyer will use.
2. Tie the claim-level A/R total to the general ledger control account at one date. If they do not match, the difference is the finding, and its size is the project.
3. Check how payments get applied. Bulk application against a batch rather than a claim is the single biggest cause of an unreconcilable book.
4. Find every contractual adjustment booked as a round number. Round numbers are plugs, and plugs do not survive diligence.
5. Total your negative claim balances and your over-180 bucket and subtract both from reported A/R. That is roughly your defensible number, and it is the one to run the business on.
The number to actually track
The proportion of a twelve-month-old A/R balance that turned into cash within six months.
Pair it with the tie between claim-level A/R and the general ledger control account at a single date. An unexplained difference is valued at zero by anyone doing diligence.
Reported A/R is the number to run the business on only after both of those tests have been applied to it.
Where this sits
This is the eighth and last of the stages where ABA revenue leaves. It is where money that was collected goes back out, and where money that was never collectible finally gets recognised.
The test a buyer runs is the same one a lender runs, and the same one you should run before a distribution.
A Leak Map Assessment measures all eight — the reservoir, authorization burn, cancellations, session conversion, conversion to billed, clean claims, rate integrity and recoupments. A claims audit is a different instrument. It starts once a session has been converted and billed, and reconciles the back half of the cycle to cash.
Aimline closes the books, oversees the revenue cycle, and sits in the CFO seat for ABA practices. We run claims audits scoped to a payer book, and Leak Map Assessments that measure the full cycle — three weeks, $7,500 fixed. Either one gives us a verified number to run oversight against, and the report is yours whether or not you engage us to fix what it finds.
