A catering business sale that stalled over old invoices

The situation

Six weeks after Karim took over the catering business, an event venue paid an invoice for a wedding that had happened before closing. The money landed in Karim's new business account, and by the next morning Phuong, the woman who had sold him the business, was on the phone telling him the payment was hers. It was not the amount that made the call difficult. It was that Phuong's voice was shaking, and Karim, three months into a life he had built around this purchase, did not yet know whether he had bought a functioning business or a legal mess. He called our office that same afternoon, unsure whether he had done something wrong simply by banking a payment sent to his own account, or whether the real problem was buried somewhere in paperwork he had barely reread since signing it.

Karim had spent eleven years washing dishes in restaurant kitchens in Manitoba before he and his wife Nadia decided to move to Ontario so he could buy something of his own. Nadia kept her job as a veterinary technician, a steady paycheque that let Karim take the risk. He found the Rockland catering business through a listing agent, a small operation that supplied event venues and a handful of corporate clients with plated meals and staffing. The purchase price sat in the low six figures, most of it financed through savings and a modest loan, with the balance drawn from a small business line of credit the bank had approved once it saw the business's existing contracts.

The deal closed quickly, faster than Karim would have liked in hindsight. The asset purchase agreement transferred the equipment, the client list, the recipes, and the business name. It said nothing specific about invoices that had gone out before closing but had not yet been paid. Both sides assumed, without saying so, that whoever issued the invoice would collect it. That assumption held for about six weeks.

Then the payments started arriving into Karim's new account, because the venue clients paid to whatever account was on file, and the account on file was now his. Phuong wanted the money for work her old company had done. Karim needed it too, because he had budgeted the first months around exactly the cash flow the business showed on paper, and that cash flow included receivables he now could not tell apart from his own.

The legal problem

Under the asset purchase agreement, Karim had bought the business's ongoing operations, its equipment, and its goodwill, but accounts receivable generated before the closing date belonged, in principle, to the seller unless the agreement said otherwise. The trouble was that the agreement did not say otherwise, and it also did not exclude receivables from the sale. It was silent, and silence in a contract does not resolve a dispute, it creates one.

The practical problem was worse than the legal one. Payments were arriving into an account Phuong no longer controlled, for work she had performed and was owed for, while Karim was using that same cash flow to run payroll for staff he had inherited from her. Untangling which invoice belonged to whose ownership period required going back through months of bookings, some of which spanned the closing date itself, with deposits paid before and balances paid after.

Phuong's calls grew more frequent and more personal. She accused Karim of taking money that was hers, at one point saying he had tricked her into selling for less than the business was worth. Karim, new to Ontario and anxious about his standing, was tempted to simply hand over whatever Phuong asked for rather than argue about it, which would have meant giving up money that was legitimately his under any fair reading of the sale. He had also never dealt with a business dispute before, in Manitoba or anywhere else, and had no instinct yet for which of Phuong's demands were reasonable and which were simply the loudest thing she was saying in the moment.

The emotional temperature mattered because it was shaping the legal outcome. A dispute conducted through accusatory phone calls tends to produce worse settlements than one conducted on paper, because neither side is thinking clearly about what they actually agreed to. Before the receivables question could be resolved properly, the conversation itself needed to change shape, from a personal grievance into a business reconciliation with numbers both sides could check.

What we did

1. Reviewed the purchase agreement for anything addressing receivables. We read through the full asset purchase agreement specifically looking for a clause dealing with invoices issued before closing but paid after, and confirmed the contract was genuinely silent on the point. That meant the default assumption in Ontario business sales applied: receivables for work performed before closing generally stay with the seller unless the agreement transfers them, and that default gave Karim a clear, defensible starting position instead of a guess he would otherwise have had to negotiate from scratch.
2. Pulled the invoicing records for the ninety days around closing. We asked Karim to gather every invoice issued in that window from the business's own booking software, matched against the date the underlying catering event actually took place rather than the date it was billed, since an invoice issued after closing for an event held before it created its own ambiguity that needed a consistent rule to sort out before any number could be trusted.
3. Proposed a bright-line rule based on when the service was delivered. Rather than argue invoice by invoice, which would have taken weeks and produced a different fight every time a new payment landed, we suggested splitting receivables by the date the catering event actually happened: anything delivered before closing belonged to Phuong, anything after belonged to Karim, regardless of which account the payment happened to land in.
4. Wrote to Phuong's side setting out the proposed reconciliation in writing. Putting the numbers on paper, in a formal letter rather than a phone call, took the emotion out of the next exchange and gave Phuong something concrete to review with her own advisor instead of relying on memory and frustration. It also created a record both sides could point back to later if a new invoice surfaced.
5. Advised Karim to stop responding to calls and route communication through us. This was as much about protecting Karim's own judgment as anything strictly legal. Every accusatory call was pulling him toward simply handing over money to make the conflict stop, which would have cost him cash flow he genuinely needed. Once the calls stopped, he was able to think about the actual numbers instead of managing Phuong's anger, and that alone improved the negotiation.
6. Negotiated a remittance schedule for receivables already collected. We agreed Karim would remit the pre-closing portion of anything already paid into his account, in two instalments over six weeks rather than as a single lump sum, so Phuong received the money she was owed without Karim having to disrupt payroll or find cash he did not currently have on hand.
7. Identified a handful of disputed invoices where the delivery date was genuinely unclear. A small set of events straddled the closing date, with setup and deposits before and the bulk of the service delivered after, and no rule cleanly resolved who was owed what. We advised Karim on the real cost of continuing to fight over roughly two thousand dollars in these edge cases against the cost, in time and legal fees, of simply conceding them and moving on.

The outcome

Karim recovered the great majority of the disputed receivables under the reconciliation rule, and Phuong received the pre-closing amounts she was owed on a schedule Karim could actually meet without disrupting his own cash flow. The written agreement also stopped the dispute from reopening every time a late payment trickled in over the following months, because both sides now had a rule to apply rather than a fight to have.

On the small set of genuinely ambiguous invoices, Karim chose to concede rather than continue arguing, giving up an amount in the low thousands. That was a real loss, and we told him plainly that a stronger read of the contract might have supported pushing further. But pushing further meant more time, more legal cost, and a continued relationship with a seller who was still a known figure among his new suppliers and staff in a small industry. Containing the loss and closing the file was the better outcome for a buyer three months into a new business and a new province.

The lesson Karim took from it, and one we now raise with every business buyer before closing, is that a purchase agreement needs to say explicitly who owns receivables generated around the closing date, not leave it to be worked out afterward under pressure. A clause that would have taken an afternoon to negotiate before closing cost weeks of stress, a strained relationship with a seller he still saw occasionally around town, and a real dollar concession to fix after the fact.

What you can learn from this