What should I check in accounts receivable before buying?

Receivables look like the simplest line on a small-business balance sheet and they are routinely the one where a buyer quietly overpays. The total is a number; the ageing is the information.

The aged listing, not the total

Ask for receivables aged by thirty, sixty, ninety and over-ninety days. A business with most of its balance inside thirty days is collecting well. One with a third sitting past ninety either has customers who do not pay or a seller who has stopped chasing — and both are your problem once you own it.

Test a sample against something independent

A receivables ledger is a document the seller produced. Reconcile a sample against invoices and against the bank deposits that followed them, and look for balances that have not moved in months, round-number entries, and amounts owing from related parties. A receivable from the owner’s other company is not a receivable in any useful sense.

Who collects is a drafting decision

There are several ordinary answers — receivables excluded and retained by the seller; included at a discount reflecting the ageing; or included with the seller guaranteeing collection and reimbursing what the buyer cannot collect within a set period. All three are reasonable. None of them is the default, so the purchase agreement has to say which applies.

Concentration matters as much as ageing

A clean thirty-day balance owed almost entirely by one customer is a different risk from the same balance spread across sixty. If that customer leaves when the owner does, you have both a receivable problem and a revenue problem — which is where this joins up with key person dependency.