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 working capital and the primary driver of DSO (Days Sales Outstanding). 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.

‍

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.

‍

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