Aging receivables beyond working capital peg

October 12, 2021
by a searcher from Columbia University - Columbia Business School in New York, NY, USA
Would love some thoughts on treatment of receivables beyond what would be included as working capital as part of a deal.
I'm looking at a company that services the construction market - end customer is developer/gov/pe firms etc.
Enterprise value is ~$9m. A/R is $2.5m. I would be receiving ~$750k as part of the work cap peg. I don't want to buy out aging receivables or receivables at all beyond the peg.
Is escrow an option? How is this typically handled? Any thoughts would be really helpful.
Thanks in advance for the feedback!
from Harvard University in Atlanta, GA, USA
in Alpharetta, GA, USA
My larger point is that in this industry you get paid when your customer gets paid. Sometimes that takes many months, but it usually doesn’t mean increased risk of bad AR. So I wouldn’t want you to lose out on this deal because of excess focus on aged AR, BUT you should go in eyes open about how long it will take to get paid in many cases.