What happens to a contractor’s supplier credit accounts after a sale?
Supplier credit accounts usually do not pass to you automatically. Each supplier decides whether to keep, change or close the account. Ask them early, expect to apply for your own terms, and find out what the seller owes before the sale closes.
Many contractors run on credit from their suppliers, and that credit is often based on the owner’s history or personal guarantee. A new owner is a new risk in the supplier’s eyes, so assume each account will be reviewed. Start by getting a list of every supplier account with the balance owing, the terms and any guarantees given. Ask your accountant to compare it with the payables in the financial statements. Unpaid bills left behind by the seller can become your problem if the agreement is vague, so your lawyer should address them in writing.
Next, speak to the main suppliers with the seller’s permission. Ask what they would need from you, such as financial information or a deposit, and how long a change would take. Tight cash in the first weeks is a common strain, so plan for it. Also consider the seller’s personal guarantees. Ask your lawyer how to release them at closing so the seller is not exposed, and so you do not inherit confusion. Finally, keep paying suppliers on time through the handover; a good record in the first weeks makes the case for better terms later.
Key takeaways
- List every supplier account, balance and guarantee before closing.
- Speak with major suppliers early about terms for the new owner.
- Plan your cash for the weeks when credit terms may tighten.
- Pay suppliers on time through the handover to build your own record.
Related reading
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Sources
This answer is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernmentHow to conduct due diligence when buying a business
- 02Business Development Bank of CanadaGovernmentAfter buying a business, what is the next step?
- 03Business Development Bank of CanadaGovernmentMajor pitfalls to avoid when negotiating a purchase agreement
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