The buyer is trying to exclude our prepaid software licenses and unbilled receivables from the Net Working Capital calculation, which artificially lowers our peg. How do we defend these assets under the IVS 105 framework?

Question

Tyler Smith · Accepted Answer

Buyers frequently try to manipulate the definitions of current assets and liabilities during the working capital peg negotiation to force you to leave more cash in the business at close. Excluding prepaid software licenses and unbilled receivables from your current assets is a classic move that artificially lowers your Net Working Capital, resulting in an unfair cash adjustment in the buyer's favor. You must defend these assets by applying the core principles of the IVS 105 Market and Income Approaches. First, prove that your prepaid software licenses represent real economic value that the buyer will benefit from post-close. If you paid for a year-long software subscription six months before close, the buyer will use that software for the next six months without paying a dime. This is an asset that reduces their post-close operating cash needs. Second, demonstrate that your unbilled receivables represent completed work for which you have a contractual right to payment. Use your EOS Scorecard history and billing records to show that these unbilled amounts consistently convert to cash in your normal operating cycle. If the buyer excludes them from working capital, they are getting the revenue from your work without paying for the operational cost you incurred to deliver it. Demand a clean, two-way working capital definition that includes all standard operating current assets and liabilities, ensuring you are fully compensated for the working capital you deliver at close.