Who Collects Accounts Receivable After an Ontario Business Sale?

A business rarely has a zero balance in accounts receivable on the day it changes hands. Customers who bought on credit before closing still owe money after closing, and someone has to chase that money down — and absorb the loss if it never gets paid. Who that "someone" is depends entirely on how the deal was structured and what the purchase agreement actually says.

This is one of those details that feels minor during negotiations and becomes a real irritant afterward if it was never nailed down. Here is how it typically works.

Share Sale vs. Asset Sale: A Different Starting Point

In a share sale, this question mostly answers itself: the corporation doesn't change, so its receivables — and the risk that some won't be collected — simply continue as before, now under new ownership. The real negotiation happens in asset sales, where receivables are just one more asset category the parties need to specifically deal with.

Common Ways Asset Deals Handle Pre-Closing Receivables

Because an asset purchase agreement identifies exactly which assets are being bought, accounts receivable have to be expressly included, excluded, or given special treatment. In practice, Ontario deals tend to land on one of a few approaches:

1. Seller retains and collects. The receivables are excluded from the sale entirely. The seller keeps the right to collect what it is owed and bears the risk that some customers won't pay. This is straightforward but means the seller (sometimes a wound-down or soon-to-be-dissolved entity) is still chasing invoices after the business itself has changed hands.
2. Buyer purchases the receivables outright. The receivables are included in the purchased assets, usually at face value less an agreed allowance for expected non-collection. The buyer takes over collection and absorbs the bad-debt risk going forward, in exchange for a price adjustment that already accounts for the discount.
3. Buyer collects as the seller's agent. The receivables stay legally owned by the seller, but the buyer — who now has the ongoing customer relationship — agrees to collect on the seller's behalf and remit what comes in, sometimes for a fee or as a courtesy tied to an otherwise cooperative transition.

None of these is a legal default; the purchase agreement has to pick one and describe it clearly, including how disputed or partially-paid invoices are handled.

Who Absorbs the Bad Debt?

This follows directly from which structure above the parties chose:

• If the seller retains the receivables, the seller absorbs any bad debt — the buyer has no stake in whether old customers pay.
• If the buyer purchases the receivables, the parties typically negotiate an allowance or discount up front to reflect expected non-collection, after which the buyer generally bears the risk on anything beyond that allowance.
• If the buyer collects as agent, the underlying risk of non-payment usually stays with the seller (who still owns the receivable), even though the buyer is doing the practical work of collecting.

A working capital adjustment mechanism, if the deal has one, can also affect this — receivables are commonly one of the line items measured for that adjustment, which is a separate mechanism from who has the contractual right to collect.

Practical Steps to Avoid Disputes

• Get the treatment of receivables written into the purchase agreement in plain terms — don't rely on an informal understanding.
• Agree on a cut-off date and a clear list (or aging schedule) of exactly which invoices are pre-closing and which are post-closing.
• If the buyer is collecting on the seller's behalf, put a simple remittance process and timeline in writing.
• Address what happens to a payment from a customer who owes both pre- and post-closing amounts — without a rule, these payments are a common source of disagreement.

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