The buy-side accountants are excluding our aged accounts receivable from our net working capital target, claiming they are uncollectible. How do we use our historical collection data and operational process to force them back into the NWC calculation?

Question

Tyler Smith · Accepted Answer

Buyers often try to classify any accounts receivable over sixty days as uncollectible to artificially lower your net working capital target. To prevent this, you must defend your receivables using your actual collection history.

Provide the buyer with a detailed analysis of your historical collections. Show them that in your industry, some customers operate on longer payment terms but always pay in full. If your data proves that ninety-eight percent of your accounts receivable over sixty days are eventually collected, the buyer has no basis to exclude them.

Explain the operational processes you use to manage collections. Show them how your finance team tracks receivables weekly on your scorecard and follows a standardized workflow to resolve outstanding balances. This demonstrates that your collections process is disciplined and effective.

Under the IVS 105 framework, the value of an asset should reflect its actual expected recovery rate. Suggest a compromise, such as a temporary escrow holdback for specific aged accounts. If those accounts are collected within ninety days post-close, the funds are released to you. This protects your proceeds while addressing the buyer's concerns about bad debt.