The purchaser sometimes acquires the seller’s accounts receivable (A/Rs) in an asset acquisition. The purchase price for the A/Rs may be included in the overall purchase price or added to the purchase price dollar for dollar for the face amount of the A/Rs. In any event, the purchaser should take steps before, at and after the closing to protect its investment in the A/Rs. Prior to closing, during due diligence, the purchaser should obtain an understanding of the quality of the A/Rs. This is accomplished by obtaining a detailed aging schedule from the seller, asking the seller about any troubled A/Rs and conducting public record searches of collection actions instituted by the seller. The purchase agreement should contain a representation from the seller that the A/Rs are valid, that there are no disputes with customers over the A/Rs and that the A/Rs are collectible. A current A/R list should be obtained at closing. Last, a mechanism should be implemented at or promptly after closing to assure that all collections of A/Rs are remitted to the purchaser. This includes an affirmative obligation of the seller to hand over any payments of A/Rs. By taking the above steps, the purchaser can ensure that its investment in the A/Rs is protected.
ABOUT GLENN D. SOLOMON
email@example.com | 443-738-1522
Glenn D. Solomon is a principal at Offit Kurman and has provided counsel to businesses and business owners for more than twenty-five years. He has extensive experience in the purchase and sale of businesses, structuring ownership agreements, and advising companies in financial distress.
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