During the Quality of Earnings audit, the buyer is trying to normalize our cash-to-collection cycle by excluding our custom AI-driven automated collections from the working capital calculations. How do we defend our accelerated accounts receivable performance to maintain a favorable net working capital peg?

Question

Tyler Smith · Accepted Answer

The buy-side Quality of Earnings team will try to establish a high net working capital peg, forcing you to leave more cash in the business at close. If your cash conversion cycle has been accelerated by custom AI-driven automated collections, the auditor may claim this represents an unsustainable spike in cash rather than a permanent operational improvement.

To defend your accelerated accounts receivable performance, you must use your EOS Scorecard data to prove this efficiency is a systematized, repeatable process. Present the auditor with at least twelve months of weekly Scorecard history showing a consistent, permanent drop in days sales outstanding since implementing your AI automated billing system.

This data demonstrates that your rapid collection cycle is not a temporary pre-sale push, but a core component of your operational engine. In the definitive agreement, negotiate a net working capital calculation based on a three-month or six-month rolling average rather than the traditional twelve-month average. This shorter window reflects your current, highly efficient cash conversion cycle.

By proving this system is fully documented in your Step by Step Exit frameworks, you force the buyer to accept a lower net working capital peg, allowing you to withdraw more cash at closing.