What should I ask about a hardware store’s contractor accounts and their payment habits?
Ask for a receivables aging report that lists each contractor account, what it owes and how late it is. Then ask who approves credit, what happens when a contractor stops paying, and which of these accounts depend on the seller personally.
Contractors can be the best customers a hardware store has, buying in volume and returning weekly, but they often pay on their own timetable. Start with an aging report showing each account, the balance and how long it has been outstanding. Look at the largest balances first, and ask about any that seem old.
Next, ask how credit is granted. Who approves a new account, are there limits, and is there a signed application or any security from the contractor? Find out how the store collects, whether it stops supplying overdue accounts, and how often it writes debts off. Compare the aging report with the financial statements and with actual deposits.
Then think about the people. Which contractors buy because they know the owner, and which because the store is convenient or competitive? Ask the seller to introduce the top accounts before closing, if the sale terms allow. Check the store’s own side too: what it owes suppliers, and whether it relies on contractor payments to cover those bills. Your accountant can tell you how long unpaid balances should be treated before you rely on them, and how to handle doubtful ones in the sale terms.
Key takeaways
- Get an aging report and look closely at the largest and oldest balances.
- Ask who grants credit and what the store does about late payers.
- Find out which accounts depend on the seller’s personal relationship.
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Sources
This answer is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernmentAccounts receivable
- 02Business Development Bank of CanadaGovernmentHow to conduct due diligence when buying a business
- 03Business Development Bank of CanadaGovernmentWhat are financial statements?
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