Key Insight
Not all accounts receivable are equal. Thirty-day receivables and 180-day receivables show the same on a balance sheet — but only one of them is money.
AR in Acquisitions
In most SMB asset sales, accounts receivable stay with the seller — the seller collects on invoices for work done before closing, and the buyer starts fresh. In some deals (particularly when the seller is eager to close quickly or when AR is operationally complex), AR transfers to the buyer at a negotiated value.
When AR transfers, the purchase price should reflect only collectible AR. Buyers should apply a discount based on the AR aging analysis.
AR Aging
An accounts receivable aging report categorizes outstanding invoices by how long they've been outstanding:
- 0-30 days: Current — very high collectibility
- 31-60 days: Slightly past due — generally still collectible
- 61-90 days: Requires follow-up — moderate collection risk
- 91-120 days: Significantly past due — elevated risk
- 120+ days: Often partially or fully uncollectible without collection action
What AR Aging Reveals
High concentrations of 90+ day AR may indicate:
- A customer in financial distress
- A billing dispute the seller hasn't disclosed
- Systematic billing problems
- Revenue recognized before cash was genuinely likely to arrive (a revenue quality issue)
In B2B service businesses, AR aging is one of the first things a QoE analyst examines.
AR as a Working Capital Component
When calculating the working capital target for an acquisition, AR must be assessed at its collectible value, not face value. A $180K AR balance with $40K in 120+ day invoices to a struggling customer isn't a $180K working capital asset — it's closer to $140K.
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