What happens with the accounts receivable when you purchase a business?

| May 25, 2021 | Business Law |

There’s a lot to think about when you’re buying a business. One of the things you need to consider is what will happen to the outstanding invoices for the company. In many cases, a business will have some accounts receivable that haven’t been paid by the time the business is sold. 

You should ensure that you have an agreement with the previous owner to determine what’s going to happen with the accounts receivable and other aspects of the business before you sign any contracts.

Two options for accounts receivable

One option that you have for these accounts is to include them in the purchase of the business. This is usually done at a discounted price because some of these accounts may remain unpaid. The upside to this is that you’ll get a financial boost if they’re paid. But, don’t ever assume that getting the money is a sure thing. Some people prefer this option because it may open the door for the person to have more work done in the future. 

The other option is to let the former owner of the business attempt to collect the money. This is a preferred choice for many people because they aren’t stuck trying to collect the money. It leaves it in the hands of the former owner to take steps to get the money they earned prior to the new owner taking over. 

Get experienced assistance before you buy

Regardless of which option you utilize during your business purchase, you should ensure that it’s clearly outlined in the purchase agreement. This helps to protect you and the former business owner. Your attorney can help you to ensure that the contract accurately reflects the agreement between you and the other party in the purchase.