The buyer is proposing a net working capital target that does not account for the cash-flow efficiencies we gained by automating our accounts receivable with AI. How do we negotiate a fair working capital peg that protects our cash at close?

Question

Tyler Smith · Accepted Answer

The net working capital target, or peg, is one of the most common areas where buyers try to claw back value at the last minute. If your AI-driven operational updates have successfully shortened your collection cycles, your historical twelve-month average of working capital will be artificially high. If you accept this historical average, you will be forced to leave excess cash in the business at close.

To defend a lower working capital peg, you must present the operational data that explains this structural shift. Use your historical weekly Scorecard to show the buyer exactly when you implemented your automated accounts receivable workflows and how your days sales outstanding declined as a result. This proves that your current, lower working capital requirement is a permanent operational improvement, not a temporary fluctuation.

Negotiate to base the working capital target on a shorter, more recent period, such as a three-month or six-month average, which reflects your new cash-flow reality. By proving that your automated systems have permanently reduced the cash needed to run the business, you can lower the required peg and walk away from the closing table with more of your cash in hand.