The buyer is demanding that we exclude our older but fully collectible accounts receivable from the Net Working Capital calculation while keeping all our accounts payable intact. How do we negotiate a fair working capital target?

Question

Tyler Smith · Accepted Answer

This is a common buyer tactic to artificially inflate the net working capital target, forcing you to leave more cash in the business at close. You must counter this by applying the concept of Reduced Gross Substantial Value, ensuring that assets and liabilities are treated symmetrically. If the buyer wants to exclude accounts receivable aged over ninety days, they must also exclude any corresponding accounts payable or accrued liabilities related to those specific projects. Go through your historical collections data and prove that your older receivables are, in fact, fully collectible. If ninety-eight percent of your ninety-day receivables are historically paid, you have the hard data to reject their arbitrary exclusion. Suggest a compromise where any receivable collected within ninety days post-closing is paid directly to you, rather than being written off as worthless on day one. This keeps the incentives aligned. Use your weekly EOS financial scorecard to show your historic collections cycle and prove that your current working capital level is fully optimized for daily operations. Do not let the buyer cherry-pick which balance sheet items to include to suit their valuation narrative. Demand a fair, mathematically consistent calculation that reflects the actual cash required to run the business.