90 day + collections experience?

November 19, 2025

by a searcher from East Carolina University in Atlanta, GA, USA

When evaluating deals at times i see businesses that have a somewhat sizable percentage of receivables in the 90+ days bucket. I've always read that you should reduce the value or exclude/write off those receivables as they could be / are difficult to collect on. What is everyone's experience with handling past due accounts receivable both in due diligence and in collections after purchase?

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Reply by a professional
from University of Michigan in Detroit, MI, USA

Hi ^redacted‌, while there are exceptions, my general advice to clients is to exclude those receivables for net working capital purposes. If the seller puts up a fight, offer to let him keep them if they actually come in (in exchange for addition working capital at close). Happy to discuss further. Feel free to reach out at redacted

Reply by a professional
from Liberty University in Fort Myers, Florida, United States

Hey David, there are really two main considerations I look at regarding AR: 1. Revenue Recognition: In small business accounting, people mess up their books a lot. A common mistake is for them to recognize revenue when they issue an invoice (generating the AR), and then recording revenue again when they collect on the invoice. Thus, they duplicate sales, and overstate profit. A way to help check this is to review the balance sheet and see if their AR balance has been accumulating over the time periods. If so, I always get context on why that is, and if it is expected/reasonable. If they have not been clearing out their AR invoices, then they would sit out there aged (since they were previously due and already paid). While you will not be able to back into the actual revenue perfectly, it helps assess if things are off. 2. Working Capital: If there is old AR, the actual working capital needed for the business may be overstated. For example, if the AR is 1M, and 300k of that is from an invoice from 2014 that they never collected and will not collect, you may assume you will need more AR at closing, than you actually do. An argument can be made to review the AR aging reports for a bad debt adjustment, but typically this is fairly immaterial. If it is material, it is not likely recurring and a one off that is typically an addback (since you will not commonly do work for companies that do not pay/go bankrupt). If it is both a meaningful amount, and recurring, then a bad debt expense adjustment can be reasonable. However, just keep in mind that you want to make sure to understand what the average amount of bad debt is for each year, and do that off sales. If you take the hit of 10 years worth of bad AR in one period, it would significantly distort the results. In all things with the AR aging report, I highly recommend looking at the current AR report, then the AR report for Dec 23 and the AR report for Dec 24. That way you can see how stale they are, and find the items that may be for something out of the period you are analyzing. Happy to talk through it more if you have any follow ups. Also, let me know if you ever need a QoE!

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