How Do You Review Working Capital and Debtors After an Accounting Practice Acquisition?
A working-capital review should show which fees will become usable cash, when they will arrive and whether that timing supports the commitments you have inherited.
Reviewing working capital and debtors after an accounting practice acquisition means looking beneath a reassuring balance-sheet total.
During the first 100 days, an invoice can be valid but disputed, collectable but late, or payable to the vendor rather than your business. Those distinctions matter when payroll and other commitments continue on schedule.
For an Australian buyer, the practical question is whether collections are developing as expected under your ownership. The answer should connect the purchase arrangements, current debtor evidence and upcoming payments, rather than treating every outstanding dollar as tomorrow’s cash.
The short answer
Reconcile the opening balances and confirm who is entitled to each collection.
Review ageing alongside disputes, payment history and subsequent receipts.
Give invoice queries and collection promises a responsible person and review date.
Translate realistic collections into a dated cash forecast.
Investigate whether a shortfall reflects timing, transition costs or weaker ongoing performance before considering more debt.
What does reviewing working capital and debtors involve?
Working capital is commonly described as current assets less current liabilities. That accounting measure is useful, but it does not establish how much cash you can use next Friday. Debtors, WIP and advance fees can carry different timing, ownership and service obligations.
Our guide to assessing your working-capital requirement explains why the amount needed depends on the operating cash cycle.
After an acquisition, you should test that cycle against actual receipts and payments while allowing for the way the practice bills annual, quarterly and monthly work.
The government’s guidance on improving cash flow highlights the importance of invoicing and debtor management in getting paid sooner. Your review should therefore cover the journey from completed work to invoice delivery and payment, alongside the expenses falling due.
Start with the settlement boundary
Before chasing an old invoice, establish whether its proceeds belong to your business.
The purchase documents may leave particular debtors with the vendor, transfer specified balances or require you to collect money on the vendor’s behalf. Your solicitor and accountant should confirm the treatment.
A separate reconciliation should identify pre-settlement invoices, transferred balances, post-settlement billing, credits and payments received into old accounts. Where clients pay several invoices together, staff need an agreed allocation process. Otherwise, a healthy bank receipt can disguise money that must later be remitted elsewhere.
Debtors and WIP at acquisition explains the questions behind those purchase arrangements. Stage 10 is the opportunity to check whether the agreed treatment is actually working, including responsibility for unfinished work and invoice disputes.
Read the ageing report as a set of stories
An ageing report shows how long amounts have been outstanding, but age alone does not explain the delay.
A recently overdue invoice may need a simple reminder. An older balance may involve a missing purchase order, a fee disagreement or a payment plan that the vendor never documented.
Use consistent ageing dates and definitions when comparing reports. Check whether the software counts from the invoice date or the due date, and reconcile the total to the ledger.
Credits and unallocated receipts should be investigated because they can exaggerate the apparent collection problem.
For significant balances, record the invoice, contractual due date, dispute status, last contact, promised payment and subsequent receipt. Group related entities where one decision-maker controls several accounts. This helps you see concentration that individual invoice lines can conceal.
The vendor may still hold useful knowledge about a client’s payment habits.
Where the handover permits, ask for that context and check it against the records. A recollection that someone always pays eventually should prompt further investigation, rather than become an unsupported receipt date in your forecast.
A falling debtor total is not automatically good news. It may reflect receipts, but it could also reflect write-offs, credits or reduced billing. The movement should explain what happened to the cash and the fees, not merely produce a smaller number.
Separate a payment delay from an unresolved dispute
A client who has not received an invoice needs a different conversation from a client who disputes its scope. The person following up should understand the engagement, work delivered and previous correspondence before contacting the client.
Business.gov.au’s unpaid-invoice guidance starts with reviewing the contract and payment conditions, then discusses reminders and possible escalation. A considerate reminder can uncover an administrative issue without turning the first contact under your ownership into a confrontation.
The ACCC and ASIC debt-collection guideline explains relevant rights and obligations.
Your team should use an appropriate, documented approach and obtain advice where the debt is disputed or collection action is contemplated. A change of owner does not justify pressure or unsupported threats.
If informal discussions stall, ASBFEO describes assistance with small-business disputes and access to dispute-resolution options. Whether it can help depends on the parties and circumstances. Escalation should be a considered decision with legal advice where required.
Turn collection evidence into a cash decision
The collection review becomes useful when it changes the forecast. Expected receipt dates should reflect payment history, current conversations and unresolved issues, rather than assuming every overdue invoice will clear this week.
A rolling 13-week cash-flow forecast can connect collections with payroll, rent, tax, repayments and remaining transition expenditure. Keep any vendor-owned proceeds separate from usable operating cash and test what happens if a significant receipt slips.
For illustration, assume the practice expects $40,000 in collections before a $30,000 payroll and expense week.
If $15,000 is delayed, only $25,000 arrives, creating a $5,000 gap before opening cash. If another $10,000 collected belongs to the vendor, usable receipts fall to $15,000 and the gap becomes $15,000.
These hypothetical figures illustrate timing and ownership, not a recommended cash buffer.
Is the shortfall temporary or structural?
A delayed but supported receipt may create a temporary gap.
A predictable annual billing cycle may create a seasonal requirement. Ongoing losses, disappearing work or consistently underpriced engagements require a broader operating response, because collections alone may not restore sufficient cash.
Before seeking additional funding, consider correcting missed invoices, resolving queries, collecting agreed instalments and deferring discretionary expenditure where appropriate. Our guide to improving cash flow before borrowing develops those operational options.
Additional borrowing brings fees and repayments. When borrowing may not solve a cash-flow problem is a useful article where the forecast shows continuing deficits.
Any finance discussion should identify the amount, duration, repayment source and remaining uncertainty rather than simply replace cash that failed to arrive.
Frequently asked questions
Should every overdue invoice be removed from the forecast?
No. Assess its expected amount and timing using available evidence. A supported payment arrangement differs from an unresolved dispute. Show uncertain receipts clearly and test a downside case.
Can I use pre-settlement collections for payroll?
Do not assume you can. Your purchase arrangements determine entitlement and any obligation to remit proceeds. Confirm the position with your solicitor and accountant before treating those funds as available cash.
How often should I review debtors?
Choose a frequency that fits collection activity and cash sensitivity. A weekly review may be useful during transition, with urgent invoices checked sooner. The first 100 days are a planning window rather than a prescribed timetable.
Does more borrowing fix slow collections?
It may address a timing gap in suitable circumstances, but it adds commitments. Investigate disputes, billing failures and ongoing performance first, then assess any remaining funding need separately.
What should the day-100 review conclude?
It should explain ownership of balances, collection trends, unresolved disputes and the resulting cash requirement. Each material issue needs an action, a responsible person and a realistic review date.
Make the review lead to action
Your debtor report should help you decide which client needs a conversation, which process needs repair and which cash assumption needs revision. By day 100, the aim is a clearer understanding of how fees become usable cash under your ownership, with unresolved issues still visible.
Has Your Funding Position Changed After Acquisition?
If your review identifies a change in cash flow, working capital or the funding arrangements, our team can help clarify the implications and discuss options.
General information only. This article does not constitute financial, credit, legal, tax, accounting, compliance or valuation advice. Finance is subject to lender approval, eligibility criteria, terms, fees and conditions. Consider obtaining independent professional advice for your circumstances before acting.
