The buyer is proposing a post-closing working capital adjustment that relies on them collecting our outstanding accounts receivable, but we are worried they will not actively pursue our past-due accounts. How do we structure the purchase agreement to prevent them from clawing back our cash?

Question

Tyler Smith · Accepted Answer

Post-closing working capital adjustments can become a backdoor way for buyers to renegotiate the purchase price after they have taken control of the business. If the buyer does not aggressively collect your accounts receivable post-close, they can write off those accounts and claw back the cash from your escrow or demand a direct payment.

To prevent this, you must structure the purchase agreement to include clear collection covenants. First, require the buyer to use commercially reasonable efforts to collect all outstanding accounts receivable for at least ninety days post-closing.

Second, specify that they must apply payments received from customers to the oldest outstanding invoices first, rather than applying them to new post-closing invoices they issue. This prevents them from starving your pre-closing receivables.

Third, include a provision that allows you to buy back any uncollected accounts receivable at their face value after the ninety-day period. This gives you the right to collect those funds yourself using your established processes.

Use your V/TO® and documented operations to show the buyer your historically low bad-debt ratio. This historical performance proves your receivables are highly collectable, making these protections easy to justify.