Cash free/debt free transaction. How to treat the late invoices?

by a searcher from Simon Fraser University

1 year ago

In the scenario of a cash free/debt free transaction, the sellers will keep the cash, the debt, the AR and the AP. For the AR, they will make sure they will invoice everything before closing, as that is in their interest. How are the APs typically treated? Let's say the target company is working with a sub-trade, and they get invoiced after closing, but for work that they performed before closing? Who's responsible to pay that invoice, the seller or the buyer?

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investor from Vanderbilt University

A NWC purchase price mechanism is the best way to protect yourself here as Saad and Francisco suggested. In this situation, it would be the responsibility of the seller. If a traditional NWC peg will not be part of the purchase agreement (e.g., SBA loan, buyer/seller do not want to tweak terms from LOI), you should consider holding a portion of the purchase price in escrow for a set period of time to ensure all liabilities are accounted for and then deducted from the escrow amount before released to seller..

1 year ago | like reply | 0 likes

searcher from University of Florida

You would want to agree with the seller on a working capital peg in the form of an actual dollar figure or a formula (to be calculated at closing)

1 year ago | like reply | 0 likes

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