Acquired Company Accounts Payable: 6 Things to Settle First

Acquired Company Accounts Payable: 6 Things to Settle First

Acquired company accounts payable is the first place an acquisition surprises a new owner. The seller's bills do not stop on closing day, vendors call about invoices you have never seen, and a payable pile that looked small in diligence turns out to include things nobody listed. Settling it early is usually cheaper than learning it vendor by vendor.

The six items below are a checklist, not a ranking. The one firm written up is System Six, a Seattle bookkeeping and fractional CFO firm that helps organizations modernize a finance function after an acquisition. System Six is a vetted Sam's List member and a paying member of our featured program; payment does not buy the language we use or its reviews. You can read how we picked this firm at the end.

1. Decide Which Acquired Company Accounts Payable You Actually Assumed

Not every deal hands you every bill. In an asset purchase you generally take the liabilities the agreement lists and the seller keeps the rest. In a stock or equity purchase you generally take the company along with everything it owes. That difference decides which vendors you pay and which you send back to the seller.

Read the purchase agreement's schedules and list each payable category: trade vendors, credit cards, accrued expenses, taxes payable and amounts owed to the seller or its owners. Mark each as assumed, excluded or disputed.

The limitation: an agreement describes who owes what between the buyer and seller. A vendor can still look to the company that placed the order, so being excluded in the contract does not always stop a collection call. Ask your attorney how to handle those.

2. Draw the Cutoff Line for Acquired Company Accounts Payable

The closing date is the line. A bill for goods received or services performed before it generally belongs to the seller's period, and one after it belongs to yours, even if the invoice is dated later. Cutoff is what separates a clean opening position from a fight six months on.

Pull every invoice dated in the weeks around closing and check the delivery date or service period against the line. Many deals also have a post-close adjustment, such as a working capital true-up, that can move money between buyer and seller after the numbers settle. Record which payables can still change.

The limitation: cutoff is a judgment when a service spans the closing date. A month of software or rent billed in advance may need to be split, so agree with the seller how those are shared.

3. Age the Vendor Payment Backlog Before You Pay Anyone

A vendor payment backlog is common right after closing, because the seller's team slowed down, bills were held for the new owner or the cash was tight. Before you start paying, age the list: what is current, what is past due and by how long.

Sort by vendor importance as well as by date. A past-due bill from a supplier you cannot run without is a different problem than one from a vendor you plan to replace. Check each vendor's terms too, since some carry late fees or interest that now accrue on your watch. A plan that pays the critical vendors first and agrees dates with the rest usually beats paying in invoice order.

The limitation: an aging report is only as complete as what has been entered. It shows the bills the company knows about, which is not the same as the bills it owes.

4. Hunt for Unrecorded Liabilities After an Acquisition

Unrecorded liabilities after an acquisition are bills that exist and have not been entered: a vendor invoice that arrives in March for work done in December, a utility true-up, a contractor who never billed, a tax notice or a lease charge. They are why a payables balance in diligence can differ from the one you inherit.

The standard way to find them is to review payments made and invoices received in the first two or three months after closing, and ask of each whether it relates to the period before closing. Add the ones that do to the list, and tell your attorney and the seller promptly, since agreements often set a window for claims.

The limitation: a search finds what arrives. It cannot find a liability that nobody has yet billed, so keep asking vendors and keep the claims window in view.

5. Set Who Approves Payments in the First 90 Days

In the first quarter, who can pay a bill matters as much as which bills there are. Bank access, the payment system and approval limits often still sit with the seller's people. Decide who enters bills, who approves them, who releases payments and who reconciles, and keep those roles apart where the team is big enough.

Set a threshold above which you or your finance lead approves, and a schedule for payment runs so vendors know when to expect money. Make any change in who signs on the accounts deliberate and documented, not a side effect of someone leaving.

The limitation: tight approval rules slow a small team down. Choose controls the business can actually run, and revisit them once the new owner understands the flow.

6. Verify Vendor Details and Tell Vendors Who You Are

A change of ownership is when payment fraud finds its opening. A message that says a vendor has new bank details, sent soon after an acquisition, is a familiar scam. Confirm any change by calling a number you already had on file, not one in the message.

Also write to your vendors. Tell them who owns the company, where to send invoices, who approves them and when they will be paid, and ask for a statement of what they believe is owed. Their statements are a check on your records and often surface a bill nobody entered.

The limitation: a vendor statement shows the vendor's view. Reconcile it to your records before you pay, since it can include items that are disputed or already paid.

Where System Six Fits

This is finance-function work, which is what System Six describes. It is a bookkeeping and fractional CFO firm based in Seattle, founded in 2009, with about 41 employees and serving clients nationwide. Its live profile lists Non-Profit Organizations, Professional Service Firms and Real Estate Investors as specialties. It says it serves small businesses generating between $1 million and $10 million of revenue and helps organizations modernize a finance function after an acquisition.

System Six does not yet have enough reviews on Sam's List for us to cite a count, so we describe the firm by what its profile says instead. The profile has limited review history, so ask for client references from owners who bought a business.

The limitation, plainly: the profile does not name accounts payable or unrecorded liabilities, so ask what is included and how the firm works with your CPA and attorney. It lists a $1 million revenue minimum, so a smaller business may fall outside it. A bookkeeping and fractional CFO firm does not replace legal counsel on what the seller owes you.

Frequently Asked Questions

What happens to accounts payable when you buy a company?

It depends on the deal. In an asset purchase you generally take only the liabilities the agreement lists. In a stock purchase you generally take the company with what it owes. Either way, list each payable and mark it assumed, excluded or disputed.

How do you find unrecorded liabilities after an acquisition?

Review payments and invoices received in the first two or three months after closing and ask whether each relates to the period before closing. Ask vendors for statements. Tell your attorney promptly about any that belong to the seller, since claims often have a window.

Should a new owner pay the seller's old vendor bills right away?

Not before checking them. Age the list, confirm each bill is owed and falls on your side of the cutoff, and pay critical vendors first on an agreed schedule. Paying an excluded bill can make it hard to recover from the seller.

When should a new owner hire help with the finance function?

Often in the first weeks, when cutoff, payables and approvals are set, because mistakes there carry into every report afterward. Ask any firm for references from owners who bought a business and what is and is not included.

Before you pay anything, gather the purchase agreement, the closing statement, the vendor list with terms, the aging report and the bank access list. You can browse fractional CFOs on Sam's List, including the firm above, and ask each how it handles payables in the first 90 days.

How We Picked This Firm

You should be able to check our work, so here is how this post was built.

The pool. The pool is the firm written up here, a vetted Sam's List member in our featured program. This is not a survey of every firm that supports buyers after an acquisition, and many Sam's List members and other firms not written up here could fit.

How it is organized. The six items are things to settle, not a ranking. System Six is the only firm written up, so there is no order of firms.

What review counts mean here. System Six has too few verified reviews on Sam's List for us to cite a count, so we describe it by its profile and do not rely on reviews. A count shows how many clients wrote something down. It does not measure technical quality.

What payment does and does not buy. Listing on Sam's List is free, and so is being named in this article. The firm written up here is a paying member of our featured program, which is why it gets a write-up. What payment does not buy is the language we use about a firm, its review count, or a promise that it fits you.

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About the author: Kimberly Green is the cofounder of Sam's List, where business owners and high earners find vetted CPAs, financial advisors, and fractional CFOs. She's met one-on-one with 400+ financial professionals and writes from the real data behind thousands of client-advisor matches. Ask her anything about finding an accountant - she's heard it all, including the questions people are afraid to ask.