During net working capital negotiations, the buyer is trying to exclude our accounts receivable aged over sixty days from the peg calculation. How do we defend the value of these aging accounts to avoid a post-close purchase price reduction?

Question

Tyler Smith · Accepted Answer

During net working capital negotiations, buyers frequently try to write off or exclude accounts receivable aged over sixty or ninety days from the working capital peg. This is a common tactic to artificially lower the assets they are purchasing, which forces you to leave more operating cash behind at closing to meet the agreed-upon peg.

To defend the value of your aging receivables, you must prove their historical collectability using operational data.

- Run a historical analysis of your aging reports over the last twenty-four months to establish your actual write-off percentage, which is likely very low if you run tight operations.
- Present evidence of your collection processes, showing how your finance team systematically resolves disputes and collects outstanding balances.
- Negotiate a true-up mechanism in the purchase agreement. If the buyer insists on excluding certain aged receivables, structure a clause that requires them to assign those receivables back to you post-close if they remain uncollected, or pay you dollar-for-dollar when the client eventually pays.

By preparing this defense before due diligence, you prevent the buyer from using standard accounting timelines to chip away at your net working capital calculation. You protect your cash and ensure you receive full value for the work you have already performed.