Q: If I sell my agency, should I get to keep my
accounts receivable and commissions received after the closing for
work performed beforehand? What about commissions for work in
progress as of the closing?
A: These issues are fully negotiable in any
acquisition. There are no fixed answers. When I represent the
buyer, I argue that the buyer should get this money, and vice
versa.
The form of the transaction should not control the resolution of
these issues. Although in most asset purchases the seller is left
with its receivables, I have seen lots of deals where the asset
buyer got the receivables.
Although the buyer automatically gets receivables in most stock
purchases, I have seen at least a few instances where the buyer
gave them back to the seller.
The best way to negotiate who gets what money is to divide the
set of receivables into categories and then compromise, with each
party taking those categories that are most important to it.
Then, the contract should have a separate clause covering each
category.
I count no fewer than 10 kinds of receivables to be covered in
any negotiation:
Ticket prices receivable from clients to whom the seller has
extended credit.
Commissions receivable from suppliers for sales for which the
client made final payment before closing.
Commissions receivable for sales for which only a deposit was
received before closing but for whom the seller has completed all
work.
Ditto for clients for whom work still needs to be done after
closing.
Commissions for trips for which only a reservation has been
made as of closing.
Market-share overrides receivable for quarters ended prior to
closing.
Market-share overrides for quarters during which closing
occurs.
CRS bonuses earned prior to closing.
Suit and settlement proceeds.
Refunds receivable as of closing.Several of these, such as the fourth and fifth examples, are
difficult for buyers to trace after closing, so the best practice
is to require sellers to list each item in an exhibit to the
contract.
In a future column, I'll cover the mechanics of collecting and
accounting for the payments.
Mark Pestronk is a Fairfax, Va.-based attorney specializing
in travel law. He answers your questions in the Crossroads Legal Issues forum. To contact Mark directly,
e-mail him at [email protected].