Protecting Your Cash flow When Your Customer Sells Their Business
When a customer decides to sell their business, you might find yourself unable to recover debt owing to you. The motivation behind the sale is key to understanding the best approach you should take to ensure you are not left with bad debts.
There are a few reasons that typically result in a business being sold off. Either the owner is retiring, relocating or suffering financial hardship.
Regardless of the reason for the sale, it is always best to attempt to recover any outstanding debt as soon as possible, and ideally before a transfer in ownership takes place. While the sale of a profitable business carries less risk to you, extended delays can occur when a new owner takes over.
If financial hardship is forcing the sale, it is unlikely you are going to hear the news of the sale of the business directly from your customer. Keep tabs on your customers paying habits and ensure any client servicing employees do what they can to identify potential cash flow red flags. You are not required to share your concerns with your customer, but you should remain vigilant with your debt recovery process.
Business sales can be structured in two ways; a stock sale or an asset sale. Both structures expose your business to risk and can impact your ability to recover debt.
Stock sale
In this scenario, all assets and liabilities are passed onto the new owner under the terms and conditions of the sale. This effectively transfers the responsibility of all outstanding debts to the new owner.
This structure is particularly tricky if you are trying to recover old debt, but is generally only used for companies with a sale price of more than $10 million, where investigation of all current liabilities can be time consuming and costly.
Asset sale
An Asset Sale involves the transfer of specific assets and liabilities. During negotiations, the buyer and seller will determine which assets and liabilities are to be included in the transaction.
As a vendor, you won’t have control over who will become responsible for the debt owing to you, so this can be problematic when trying to recover outstanding amounts owing.
How to protect your cash flow
Once you’re aware of your customer’s intention to sell you need to be extra diligent in following up outstanding accounts, with the aim of settling any debt prior to sale. Avoid extending credit on future purchases and if you are still providing goods or services, arrange for upfront payment until the new owner takes over.
As with any debt recovery process, staying informed and following up gives you the best chance of protecting your cash flow and your business.
If you are worried about outstanding debt before a sale, engage the services of a professional debt collection agency who can act fast on your behalf, and increase your chances of recovering payments.
Marshall Freeman is Australia’s leading debt collection company, so not only do we have extensive experience in recovering debt, but understand how to get paid quickly when businesses are being sold off.
For more information on protecting your business’s cash flow or if you would like a FREE debt appraisal, get in touch with us today!