The buyer wants a one-way working capital escrow. How do we negotiate a bilateral adjustment to recover our excess cash?

Question

Tyler Smith · Accepted Answer

Buyers often use working capital escrow accounts as a one-way street to claw back cash after the transaction closes. If they set an unrealistic working capital target, they will claim a shortfall and pull money out of the escrow, while any excess working capital you leave in the business is absorbed by them for free. To protect your hard-earned cash, you must demand a bilateral adjustment mechanism.

This means that if the actual net working capital at closing exceeds the agreed-upon target, the buyer must pay you the difference dollar-for-dollar. To negotiate this effectively, you must establish a precise, historical methodology for calculating the working capital peg. Do not let the buyer cherry-pick a single month where your accounts receivable was unusually high. Instead, use a trailing twelve-month average that reflects the real operating cycles of your business.

Your financial director should present clear reports showing how your weekly cash-flow tracking and accounts receivable metrics are managed during your Level 10 Meeting™. By demonstrating that your working capital management is highly disciplined and predictable, you can force the buyer to agree to a fair, symmetrical adjustment process where you are paid for every extra dollar of value you leave on the balance sheet.