Post-closing working capital disputes start when the buyer delivers its closing statement — typically 60–120 days after the acquisition closes — showing a calculation of actual closing working capital that differs materially from the target working capital used to set the purchase price. If the actual is lower than the target, the seller owes the buyer a downward price adjustment. Disputes arise when the seller believes the buyer's calculation is wrong, manipulated, or inconsistent with the accounting methodology agreed at signing.
The mechanics of a working capital adjustment are set up at signing but the dispute typically starts 90 days after closing, when the buyer delivers the closing statement. In the intervening period, I've seen sellers make the mistake of disengaging from the process entirely — they closed, they received their consideration, they've moved on. When the closing statement arrives showing a $3 million negative adjustment that they weren't expecting, they scramble to reconstruct records, find advisors, and understand a process that is already running on contractual deadlines. The pattern in buyer closing statements is consistent: the buyer's statement is almost always their most aggressive possible position. Sophisticated buyers understand that in a negotiated dispute, the outcome will be somewhere between the two parties' positions, so opening aggressively captures value even if the final resolution requires concessions. The items most commonly disputed include: accounts receivable that the buyer classified as uncollectible based on overly aggressive aging assumptions; inventory that the buyer wrote down based on new assessments rather than the historical methodology; accrued expenses that the buyer added or inflated; reserves that the buyer added that weren't reflected in the seller's historical practice; and intercompany adjustments that the buyer applied differently than the parties understood at signing. Understanding which specific items are driving the dispute is the first step to assessing whether the buyer's position is defensible accounting or manufactured adjustment.
Most acquisition agreements provide a defined process: the buyer delivers a closing statement within a specified period, the seller has a response period to object in writing, the parties have a negotiation period to resolve objections, and unresolved disputes go to a neutral accountant for binding determination. The purchase agreement's specific deadlines and procedural requirements are mandatory and missing them can waive the seller's objection rights.
The dispute resolution process in the purchase agreement is where sellers make their most costly procedural mistakes, and I typically advise sellers to treat every deadline as hard and every procedural requirement as mandatory regardless of how unreasonable it seems. The typical process runs as follows. The buyer delivers the closing statement within 60–90 days after closing. The seller has 30–45 days to review and deliver a written objection notice specifying each disputed item and the seller's proposed adjustment. If the seller fails to deliver a timely objection notice, the buyer's closing statement is typically deemed final and binding — even if it contains errors. This deadline is jurisdictionally important and I've seen sellers lose the ability to contest a $5 million adjustment because they missed a 30-day objection deadline while waiting for their accountants to complete a review. If the seller delivers a timely objection, the parties have a negotiation period (typically 30 days) to resolve the items in dispute by mutual agreement. Items that cannot be resolved in the negotiation period are submitted to a neutral accountant for binding resolution. The neutral accountant's mandate is limited to accounting disputes within the scope of the objection notice — they cannot address legal claims, cannot revisit items that the parties agreed on, and cannot decide questions that go beyond the accounting methodology. This limitation is important: if the dispute is really about whether the buyer applied the correct accounting principles, the neutral accountant can resolve it; if the dispute is about whether the buyer's conduct was a breach of the purchase agreement, that goes to court.
Buyers manufacture working capital disputes by applying accounting judgments more aggressively than was done historically, reclassifying items between current and non-current categories, inserting reserves that were not part of the company's historical practice, applying overly conservative aging assumptions to receivables, and interpreting the definition of working capital differently than the parties understood at signing.
In my experience advising sellers in working capital disputes, the "manufactured" dispute is distinct from the legitimate accounting disagreement, and the distinction matters because it affects both legal strategy and settlement approach. Legitimate accounting disagreements arise when the purchase agreement's working capital definition is ambiguous, when the closing accounts involve genuine judgment calls about estimated liabilities or reserves, or when events between signing and closing create accounting questions that weren't anticipated. Manufactured disputes involve the buyer applying new accounting judgments specifically for the closing statement that are inconsistent with the company's historical practice and that were never discussed during due diligence. The four most common manufactured dispute tactics are these. First, AR aging manipulation: the buyer applies an AR write-down formula that is more aggressive than the seller's historical practice, writing off receivables that are 60 or 90 days old that the seller would have historically collected with normal follow-up. Second, inventory write-down: the buyer applies new assessments of inventory obsolescence using their own standards rather than the company's historical practice. Third, accrued expense inflation: the buyer adds accruals for liabilities (legal contingencies, environmental matters, customer credits) that were not in the seller's closing balance sheet and were not disclosed during due diligence. Fourth, GAAP interpretation differences: the buyer argues that the company's historical accounting in certain areas was not consistent with GAAP and recalculates working capital on a "corrected" basis — which happens to produce a number significantly lower than what the parties assumed at signing.
Defending your working capital position requires documentation of the company's historical accounting practices, evidence that the buyer's adjustments depart from those practices, and support for each item included in your closing working capital figure. The most important document is a detailed analysis comparing the buyer's accounting treatment of each disputed item to the company's documented historical treatment of the same items.
Building a working capital defense is primarily an accounting exercise, but the supporting evidence needs to be organized for an audience that may include a neutral accountant, a mediator, or a court. The essential evidence categories are these. Historical accounting documentation: evidence of how the company historically calculated each disputed line item — AR reserves, inventory write-downs, accrued expense categories — including the specific methodology, the inputs, and the resulting figures for the last two to three fiscal years. This documentation establishes the "consistent with past practice" baseline that most purchase agreements use as the accounting standard for the closing statement. Methodological deviation evidence: documentation that the buyer's closing statement departed from the historical methodology — using different aging brackets for AR, applying new inventory categories, inserting reserves not previously maintained. The clearest version of this is a side-by-side comparison showing the seller's historical treatment and the buyer's closing statement treatment of the same item, with the dollar difference. Support documentation: backup documentation for the specific items included in the seller's closing working capital — customer invoices for disputed receivables, inventory count sheets, accrual calculations. The neutral accountant will ask for support on every contested line item, and having it organized before the process starts saves significant time and money. Communication documentation: records of any discussions during due diligence about the accounting treatment of items now in dispute, including data room materials, Q&A exchanges, and management presentations. If the buyer asked about your AR aging methodology during diligence and received an explanation, that exchange is relevant to whether their post-closing departure from that methodology was legitimate.
The neutral accountant — typically a partner from one of the large accounting firms or a specialized firm — receives written submissions from both parties on the disputed items, may ask questions or request additional information, and renders a binding determination. The process takes 30–90 days, is less expensive than litigation, and is binding on the accounting questions within the neutral's mandate. The neutral cannot decide legal questions, cannot award damages beyond the accounting adjustment, and cannot address items outside the scope of the parties' objection notices.
The neutral accountant process is frequently misunderstood by sellers who expect it to function like arbitration or mediation. It is neither — it is a technical accounting determination by a subject matter expert. Understanding what the neutral can and cannot decide is essential before going into the process, because some sellers enter expecting a comprehensive resolution of all disputed value and exit having resolved only the accounting questions — with legal claims still pending. The neutral's mandate is defined by the purchase agreement and by the parties' submissions. In most working capital adjustment processes, the neutral can: determine which party's accounting treatment of a disputed line item is consistent with GAAP and with the accounting methodology defined in the purchase agreement; render a determination on the calculation of working capital applying the correct methodology; and decide procedural questions about the scope of items properly within the dispute. The neutral cannot: decide legal questions about breach of contract, fraud, or intentional manipulation; award damages beyond the working capital adjustment; address claims that the buyer's conduct during the closing statement preparation was improper; or decide items that were not included in the seller's timely objection notice. If the seller's claims go beyond pure accounting disputes — if the seller believes the buyer intentionally misrepresented the calculation or violated the agreement's accounting methodology provisions — those claims require legal proceedings, not neutral accountant arbitration.
Litigation of a post-closing working capital dispute is worth pursuing when the neutral accountant process is insufficient to capture the full value of the seller's claims — typically because the dispute involves buyer conduct claims beyond pure accounting questions, or because the neutral accountant's determination left significant value unresolved. For most disputes under $3 million, the neutral accountant process and direct negotiation produce better risk-adjusted outcomes than litigation.
The decision to litigate a working capital dispute depends primarily on the nature of the underlying claims and the transaction size. The landmark case in this area is Chicago Bridge & Iron v. Westinghouse Electric, which addressed fundamental questions about the scope of post-closing adjustment disputes and whether claims about a buyer's conduct in preparing the closing statement can be pursued as independent legal claims or are subsumed within the purchase agreement's dispute resolution mechanism. The CB&I case illustrates a recurring tension: buyers who are disappointed with the acquisition often use the working capital process as a vehicle for broader purchase price renegotiation, and sellers who receive aggressive closing statements are left deciding whether their claims are pure accounting disputes (resolvable through the neutral accountant) or conduct claims (requiring litigation). For disputes where the buyer's conduct was genuinely improper — where the closing statement was prepared using accounting methods that were deliberately different from what the parties agreed at signing, or where the buyer failed to apply the historical methodology in bad faith — litigation may capture value that the neutral accountant cannot. The economics of that decision depend on transaction size: working capital disputes under $3 million rarely justify the cost of litigation, while disputes in the $10–50 million range frequently do. The credible threat of litigation — demonstrated by engaging M&A litigation counsel and delivering a demand letter that specifically identifies legal claims alongside accounting objections — also has significant settlement value that can be captured without actually going to court.
The most protective working capital provisions are a locked-box mechanism (which eliminates post-closing adjustments entirely), a precisely defined working capital calculation with specific accounting methodology locked in, a tight collar around the target working capital, and a short preparation period for the closing statement with limited buyer discretion over accounting judgments.
Having been through a working capital dispute — or having advised sellers through one — most founders want to ensure they never face this situation again. The protections start at signing, and there are five provisions that matter most. First, the locked-box mechanism: this approach eliminates post-closing working capital adjustments entirely by setting a fixed purchase price based on a specific balance sheet date, with protections against cash or value leakage out of the company between the locked-box date and closing. Locked-box deals are common in European M&A transactions and are becoming more common in U.S. transactions, particularly where both parties want deal certainty. They eliminate working capital disputes but require that the closing balance sheet accurately reflect the company's financial position as of the locked-box date. Second, a precisely defined working capital calculation with accounting methodology locked in: the purchase agreement should specify not just the working capital line items but the specific accounting policies used to calculate them — the AR aging methodology, the inventory write-down criteria, the accrual policies. The more specific the methodology, the less room for the buyer to apply different accounting judgments in the closing statement. Third, a narrow collar: most working capital adjustments include a collar — a range within which no adjustment is made — which reduces both parties' exposure to small adjustments and incentivizes both sides to get the estimated working capital right rather than gaming the final calculation. Fourth, a short closing statement deadline: the buyer should be required to deliver the closing statement within 45–60 days of closing, not 90 or 120 days. The longer the buyer has, the more time they have to construct an aggressive position. Fifth, a defined accounting methodology for disputed items that requires the neutral accountant to apply the historical methodology rather than choosing independently — which ensures the process tests adherence to the agreed methodology rather than producing a novel accounting determination.
The most important thing I tell sellers before a closing is: don't stop managing the working capital calculation just because the deal has signed. The period between signing and closing is when the working capital is actually measured, and decisions made in that period — how aggressively to collect receivables, how conservatively to accrue liabilities, what inventory adjustments to make — directly affect the final calculation. Sellers who close their books carefully, document their historical accounting practices explicitly, and monitor working capital trends in the final weeks before closing are far less vulnerable to post-closing disputes than sellers who treat the signing date as the finish line and hand over the books on closing day. The dispute, if there is one, will turn on what was in those books at closing and why. Know the answer before it becomes a question.
Gurpreet S. Bal is a Partner at Foley and Lardner LLP in Silicon Valley, where he advises startups, founders, and investors on SAFE financings, venture capital rounds, mergers and acquisitions, acquihires, and IPOs. He has represented clients in hundreds of transactions with aggregate deal value exceeding $60 billion across AI, semiconductors, fintech, and emerging technology. Prior to his career as a corporate lawyer and transaction advisor, he served with the U.S. Department of Justice and as an international and cross-border tax advisor at a Big 4 accounting firm.