Working capital true-up

Purchase price is agreed weeks before closing, based on estimated numbers, but working capital, meaning receivables, payables and inventory, keeps moving until the day the deal actually closes. The true-up is how the price catches up to reality: a closing-date balance sheet is prepared, compared against the target, and the buyer or seller pays the gap, in whichever direction it runs.

How the process usually runs

• An estimated adjustment is made at closing based on preliminary figures
• A closing-date balance sheet is prepared within an agreed period afterward
• The actual number is compared to the peg set in the purchase agreement
• A true-up payment moves from whichever side owes it, often through the holdback where one exists

Where the disputes usually come from

True-up disagreements are rarely about the concept, since both sides accepted the peg when they signed. They are about accounting judgment calls made after the fact: how a doubtful receivable is treated, whether obsolete inventory still counts at full value, which invoices belong in which period. The purchase agreement’s accounting policies section is what actually settles these arguments, so it is worth more attention at signing than it usually gets.