---
title: "Working Capital Adjustment"
url: "https://mahouse.world/glossary/working-capital-adjustment"
type: "glossary term"
topic: "Deal structure"
author: "Ihor Vlasov"
reviewed: "2026-09-20"
published: "2026-08-10"
---

# Working Capital Adjustment

A working capital adjustment is the change made to an acquisition price for the difference between the target's working capital at completion and a target level — the "peg" — agreed at signing. It stops a seller stripping the business of receivables and inventory before handing it over, and a buyer paying twice for the cash the business needs to run.

**Also known as:** Net working capital adjustment, NWC adjustment, Working capital peg

## Key facts

- **Used at:** the price mechanism of a share purchase agreement with completion accounts
- **Binding:** yes; the peg, the definition of working capital and the policies are all in the agreement
- **The peg:** normally a twelve-month average of the company's working capital, adjusted for one-offs
- **Direction:** pound for pound in either direction, sometimes within a collar
- **What counts:** receivables, payables, accruals, inventory; never cash, debt, tax or client funds

## How a working capital adjustment works in practice

An enterprise value assumes the business comes with the working capital it needs — the receivables it will collect, the payables it will pay, the float that keeps it running between the two. If a seller collects every receivable and delays every payment in the week before completion, the buyer gets the same enterprise value with less working capital in it and has to fund the gap. The adjustment prevents that by comparing working capital at completion with the peg and moving the price by the difference.

Setting the peg is the real negotiation. A seasonal business has high working capital in some months and low in others; the peg has to be a normal level, which is why a trailing twelve-month average is the usual basis, with the one-off items — a large customer that paid early, a supplier settled ahead of schedule — taken out. For a fintech the definitions matter more than the level: merchant settlements in transit, funds owed to customers, safeguarded balances and scheme receivables all sit on the balance sheet and none of them is the company's working capital in the sense the adjustment means. A definition that captures them will move the price by millions for no economic reason.

A collar — no adjustment within, say, £100,000 of the peg — keeps small differences out of the mechanism; a cap on the adjustment protects both sides from a surprise.

## Example

A payments company's working capital has averaged £1.4m over the past year, so the peg is set at £1.4m. At completion, working capital measured on the agreed definition — receivables from merchants and schemes net of merchant payables, but excluding £6.8m of funds in transit — is £1.05m. The price falls by £350,000. Had the definition included funds in transit, the "adjustment" would have been an increase of £6.45m, which is why the exclusion was in the agreement.

## Common mistakes

- A peg set on the balance sheet at signing rather than a normalised average.
- A definition of working capital that includes items that are really cash or debt, or client money.
- No collar, so both sides spend on advisers to argue over £20,000.
- Forgetting that the adjustment and the cash-free debt-free bridge must use the same definitions, or an item is counted twice.
- Sellers who manage working capital down before completion and are surprised to pay for it.

## Related terms

- [Completion Accounts](https://mahouse.world/glossary/completion-accounts.md)
- [Locked Box](https://mahouse.world/glossary/locked-box.md)
- [Share Purchase](https://mahouse.world/glossary/share-purchase.md)
- [Enterprise Value](https://mahouse.world/glossary/enterprise-value.md)
- [Equity Value](https://mahouse.world/glossary/equity-value.md)
- [Free Cash Flow](https://mahouse.world/glossary/free-cash-flow.md)

— Ihor Vlasov, M&A FinTech Expert. Last reviewed 2026-09-20. https://mahouse.world/authors/ihor-vlasov