Trade receivables

Trade receivables (créances clients) are amounts owed by customers for goods delivered or services rendered but not yet paid. They are a core component of the working capital requirement and the primary driver of DSO (Days Sales Outstanding), calculated as trade receivables divided by revenue, multiplied by 360 days. In financial due diligence, trade receivable quality analysis covers: aging profile, bad debt provisioning adequacy, concentration risk (top 5 clients), disputed invoices and year-end manipulation (fictitious invoicing to inflate revenue). Receivables quality is a critical earnings quality indicator: aggressive recognition inflates both revenue and assets simultaneously.

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Financed receivables deserve specific attention. When trade receivables are sold through factoring or assigned under a French Dailly assignment, the balance sheet shows an artificially low receivables position and a flattering DSO. If the transfer is with recourse, the financing is reinstated as net financial debt in the equity bridge, and normalised working capital is recalculated as if the receivables had remained on balance sheet, a frequent source of price negotiation between buyer and seller.

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Example: due diligence on a Swiss distributor reveals CHF 1.8 million of trade receivables overdue by more than 90 days, provisioned at only 20% (CHF 360,000) against an industry norm of 50% (CHF 900,000). The CHF 540,000 under-provisioning reduces normalised EBITDA and requires a corresponding warranty provision in the SPA. Additionally, CHF 650,000 of receivables from a single customer representing 28% of the total signals unacceptable concentration risk.

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Hectelion analyses trade receivable aging, provisioning adequacy, factoring arrangements and concentration risk as core components of every working capital and quality of earnings review.