Contact Us

Selling a Company: Putting a Value on Trade Debtors

But not until its paid for!

But not until its paid for!

A contentious area in many company sale transactions is the quality of the debtor book, and what happens if customers don’t pay on time or in full. Buyers will try to negotiate protections in the sale contract.

As any business owner knows a large part of the working capital tied up in a balance sheet is in the form of trade debtors. Business buyers know this too, and if they are to buy the balance sheet along with the company will want to be certain that all the debts are collectable.
 
So What Protections Do Buyers Usually Ask For?
 
Older Debts

Buyers are reluctant to pay for debts that are overdue. Debts more than 30 days over terms will usually not be paid for at closing, but the seller will be paid if the debt is eventually collected;

Disputed Debts

Any debts in dispute with the customer, no matter how valid the seller’s claim, will not be paid for. The debt may be left with the seller to collect, or arrangements will be made for reimbursement if the debt is eventually collected.

Debts Not Collected

The seller will be expected to reimburse the buyer if a customer fails to pay a debt that was within terms at the date of sale.

Retentions

If the buyer is purchasing the shares of a company a proportion of the price paid, usually at least 10%, will be held back for a period to pay any claims against debtors or stock.

Collecting The Trade Debtors Yourself Is An Option

If the buyer is purchasing only assets it is not unusual to leave the trade debtors with the seller to collect. This has the dual advantage of reducing the consideration paid at the closing, and removing a contentious issue from negotiations. This approach is not without its risks for the buyer. The seller might chase payment more aggressively if he no longer has to worry about retaining the customer. To avoid this the buyer will often agree to collect the outstanding balances on behalf of the seller – sometimes a small commission (1-2%) is paid by the seller for this service.

Whatever the approach taken the seller needs to make sure his solicitor protects his interests by negotiating a right to inspect the books after closing.

 

If you are interested in finding out more about these and other issues relating to the sale of a private company one of our business sale experts would be delighted to talk to you in complete confidentiality. Click CONTACT ME to book an initial phone conversation or call us on 01604 432964.

 
We welcome comments on posts, and questions from our readers. Use the “Leave a Reply” box below. We answer all reader questions within 24hrs. If you would like to be informed about new posts on the theme of selling a private company click the “Subscribe” button at the right hand side of this page.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

* Copy This Password *

* Type Or Paste Password Here *

22,130 Spam Comments Blocked so far by Spam Free Wordpress

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

back up ↑
UA-35460329-1