The buyer wants to exclude our aging accounts receivable from the net working capital calculation while keeping the corresponding liabilities in the peg. How do we structure a post-close true-up mechanism to protect our cash for invoices that are technically past due but highly collectible?

Question

Tyler Smith · Accepted Answer

Buyers frequently try to cherry-pick assets during the net working capital negotiation. A common tactic is excluding accounts receivable over ninety days from the closing working capital peg while retaining the full value of your operational liabilities. This effectively forces you to hand over valid assets for zero credit.

To defeat this, refuse a blanket exclusion of older receivables. Instead, negotiate a post-close collection true-up mechanism. Agree that any receivable over ninety days at close will be excluded from the initial net working capital calculation, but will remain your property.

Under this structure, the buyer is required to use commercially reasonable efforts to collect those older invoices for a specified period, typically ninety to one hundred and twenty days post-close. As those collections come in, the cash must be remitted to you dollar-for-dollar.

To make this seamless, use your operating system to show the buyer your historical collection rates. Prove that your ninety-day receivables are not bad debt, but rather a function of specific billing cycles or client payment terms. This data-driven approach removes the emotion from the negotiation and ensures you do not leave your earned cash on the table at close.