The buyer is trying to exclude any accounts receivable older than ninety days from our working capital calculation, which would force us to leave extra cash in the business at close. How do we negotiate a fair treatment of our older receivables without taking a direct hit to our cash proceeds?

Question

Tyler Smith · Accepted Answer

Buyers frequently attempt to write off older accounts receivable during the working capital negotiation to artificially lower the value of the assets you deliver at close. If they exclude these receivables from the target working capital, you are effectively giving them the right to collect that cash post-close for free.

To prevent this cash leak, you must negotiate a clear mechanism for handling aged accounts receivable. First, propose a clawback or collection covenant. Under this structure, any receivable older than ninety days is excluded from the closing working capital target, but the buyer must return any cash they successfully collect on those accounts post-close.

Second, use your historical collection data to prove your recovery rate. If your accounting team has historically collected eighty percent of ninety-day-old invoices, demand that these receivables be included in the calculation at a discounted rate, rather than excluded entirely.

Keep your financial metrics tight. Your team should be tracking your days sales outstanding on your weekly scorecard. Showing the buyer a consistent, disciplined collection process run through your EOS framework proves that your aging receivables are not bad debt. By presenting clean historical recovery metrics, you can force the buyer to accept a fair valuation for your receivables rather than taking a painful adjustment at the closing table.