The buy-side diligence team wants to carve out all accounts receivable aged past sixty days from our Net Working Capital peg, treating them as uncollectible. How do we defend our receivables to protect our cash at close?

Question

Tyler Smith · Accepted Answer

Buyers love using sixty-day accounts receivable cutoffs as an easy way to siphon value out of your closing cash balance. By classifying these invoices as non-performing assets, they demand that you leave the cash required to replace them inside the working capital peg, while simultaneously keeping the right to collect that money post-close.

Standard middle-market practice typically allows for a ninety-day cutoff on commercial accounts receivable, unless your contracts explicitly state shorter terms. To defend your sixty-day receivables, you must present a multi-year historical recovery analysis showing that your write-off rate on balances aged between sixty and ninety days is negligible.

Pull your collection data for the past three years. If historical data demonstrates that ninety-seven percent of your accounts aged past sixty days are ultimately collected in full, provide this documentation to the QoE analysts. Prove that your delays are caused by enterprise customer payment cycles, such as Fortune 500 accounts payable procedures, rather than bad credit or disputed deliverables.

If the buyer refuses to budget on an aggressive cutoff, counter with a structural remedy: carve the aged receivables entirely out of the transaction. If the buyer will not give you full credit for them in the Net Working Capital peg, retain full ownership of those specific invoices. Your team can collect them post-closing and keep one hundred percent of the cash, or structure a true-up mechanism where the buyer pays you dollar-for-dollar as the customer funds clear.