While all transactions are as unique as the parties involved, in most small business sale transactions the seller keeps the cash and outstanding receivables. They pay off the bills and any other outstanding payables and deliver the business free and clear of debt to the buyer.

In somewhat larger business sale transactions, there are many reasons why buyers consider acquiring the receivables.

  • Purchasing the accounts receivable offers the buyer the advantages of having control over the collection of the receivables and continued cash flow from the business, thereby removing the need to acquire additional working capital.
  • By acquiring the receivables the buyer immediately begins dealing directly with the most important element of the business - its customers.
  • The sale of the accounts receivable also offers the seller a clean break from the business and the ability to cash out. This approach leaves no open-ended accounting issues after closing.
  • Valuing the receivables depends on the future risk and resources necessary to collect the outstanding receivables. Therefore, the aging report of the accounts receivable would ordinarily be reviewed for history of late paying or uncollectible accounts so both buyer and seller could come to agreement on what should be paid for the outstanding receivables by the buyer.

Payables incurred prior to the transaction date is sometimes negotiated to suit the circumstances of the particular transaction, whereby the responsibility for the payables is sometimes considered by a buyer.

  • By assuming the responsibility for the payables, the buyer immediately begins forming their own relationship with another key element of the company -- the suppliers, vendors, and other service providers. It puts the new owner in control of dealing with these important contacts instead of the former owner.
  • The purchase price paid to the owner is reduced by the amount of accounts payable that is being assumed by the buyer. Then the buyer, as the new owner, pays the invoices as they become due. Not only would the new owner keep more money at closing -- the new owner gets a time period of 30 to 60 days of, essentially, interest-free financing for the payables.
  • Capital to cover the payables as they come due would most likely be available as the receivables start rolling in and are deposited.
  • An accounts payable ledger would be a tool in helping buyer and seller determine the reduction in price paid at closing by the buyer for assuming the responsibility of paying the outstanding invoices.