The buyer is insisting on a cash-free, debt-free deal but wants to exclude our accounts receivable over ninety days from the working capital peg, even though we historically collect on ninety-five percent of these accounts. How do we defend these aged receivables?

Question

Tyler Smith · Accepted Answer

Buyers love to exclude accounts receivable over ninety days from the working capital peg while keeping the right to collect them post-close. This is a classic double-dip that deprives you of cash you have already earned.

To fight this, you must prove your collection history with hard data. Pull your historical aging reports and show the buyer that your actual write-off rate for ninety-day-plus receivables is only five percent. This data proves that these aged accounts are valid assets, not bad debt.

Next, look at how your cash collection process is managed. If you run your business on a solid operating system, you likely have a specific seat on your Accountability Chart responsible for collections, with weekly metrics tracked on your Scorecard. Show the buyer this operational consistency. Demonstrate that your collection process is systematic and highly effective.

If the buyer still refuses to include these accounts in the net working capital peg, propose a compromise. Agree to exclude them from the peg at close, but include a post-close adjustment clause. This clause should state that if any of those ninety-day-plus receivables are collected within six months after closing, the buyer must pay those funds directly to you, dollar-for-dollar. This protects your cash while removing the buyer's risk.