During due diligence, the buyer's accountants are attempting to exclude any accounts receivable over sixty days old from our net working capital calculation, which would force us to inject cash at closing to hit our target peg. How do we structure our working capital definitions and post-closing collection protocols to protect the value of our aging receivables?

Question

Tyler Smith · Accepted Answer

Buyers frequently use the net working capital peg as a tool to re-trade the deal price in the final days of diligence. By labeling your older accounts receivable as uncollectible, they artificially lower your current assets, requiring you to leave more cash in the bank at closing to meet the working capital target. You must fight this adjustment with clear definitions and structured collection protocols:
- Present historical collection rates to prove that aging balances between sixty and ninety days are highly collectible assets.
- Structure the purchase agreement to include a post-closing collection and adjustment mechanism that pays you dollar-for-dollar for post-close collections.
- Use your weekly Level 10 Meeting™ to review aging receivables and assign specific Rocks to clean up outstanding balances before closing.
If you routinely collect on receivables between sixty and ninety days, present this historical data to prove that these aging balances are highly valuable assets, not write-offs. Use this evidence to push back on the buyer's arbitrary sixty-day cutoff. Under a post-closing adjustment structure, any aging accounts receivable that are excluded from the closing working capital calculation are not simply gifted to the buyer. Instead, if the buyer collects on those aging accounts within a specified period post-close, they must pay you dollar-for-dollar for those collections.
By reducing your overall aging receivables before the transaction closes, you reduce the buyer's leverage to make these working capital adjustments. Combine this operational discipline with a fair post-closing adjustment clause to ensure you are paid for every dollar of value your business has generated.