Unpaid Invoices and Prepaid Services: Whose Responsibility Post-Closing?

Our last article covered the unfinished business doctrine, a legal principle that determines who gets paid for ongoing work when a business is sold midstream. Before that, we explored how credits and accounts receivable fit into the structure of a deal. If you haven’t read those yet, we recommend going back because they lay the foundation for understanding how revenue and obligations pass between Seller and Buyer during an asset sale.

This time, we're shifting the lens to a different kind of money flow. One that isn’t about earnings, but vendor obligations. Specifically, what happens when the Seller has already paid for something the Buyer will use after closing, or when the Seller has used services but hasn’t paid yet. These issues come up in most transactions, and they raise a practical question many business owners overlook until it’s too late: Is this actually listed in your agreement, or are you about to inherit (or forfeit) vendor bills you didn’t plan for?

The Moment the Clock Splits: Before Closing vs After Closing

The closing date is the reference point when ownership of the assets formally transfers. It’s also the moment when risk and responsibility should shift, but only to the extent the agreement makes it clear.

That’s where problems creep in: a vendor invoice might land on the closing date but cover three months of past work, or a software subscription could’ve been paid upfront by the Seller but still deliver value long after the Buyer takes over. Closing isn’t a clean ledger line; it’s a seam. And the less clearly that seam is handled in the agreement, the more likely one side ends up carrying costs they never planned for.

Accounts Payable to Vendors

Accounts payable refers to the money your company still owes to third-party vendors for goods or services that have already been delivered. These are short-term liabilities, and they sit on your balance sheet until paid. In everyday operations, that’s just part of running a business. But in an asset sale, it becomes a live-wire issue. The Buyer is acquiring specific assets, not your full business entity, and unless the agreement clearly says otherwise, liabilities don’t transfer.

This means any unpaid vendor invoice, whether for supplies, marketing, tech services, or anything else, stays with you, unless the Buyer agrees to assume it. If you don’t list these obligations in the agreement, you run the risk of that invoice showing up at the Buyer’s door weeks after the deal closes. They may pay it to protect operations, then come straight back to you. In most transactions, this plays out long after the signatures are dry. And if it’s not handled in the Schedule of Liabilities, it becomes a question of who pays the vendor after the asset sale and how that answer holds up legally.

Vendor Prepayments: Money Already Spent, Benefits Yet to Come

Vendor prepayments are expenses you have already covered before receiving the goods or services. Think about software licenses paid in January when an asset sale occurs in April, or liability insurance premiums that extend into the next fiscal year. In accounting, these sit as prepaid expenses because the benefit is still running. But in an asset deal, they flip into a mirror image of accounts payable.

From the Buyer’s perspective, those prepayments can represent certain assets with value that extends beyond the purchase price, but only if they are clearly identified in the agreement. If they aren’t, the business owner who prepaid may lose money, while the Buyer ends up with access to benefits that weren’t properly reflected in the deal’s fair market value.

Final Words

We hope this installment of our asset purchase agreement series helps you see why listing accounts payable to vendors and vendor prepayments is a direct factor in how real money, risk, and vendor relationships move once an asset sale occurs. If those amounts aren’t clearly written into your agreement, you could lose the benefit of money you already spent, or end up responsible for costs you never agreed to. In our next article, we’ll turn to [insert topic here].

Are you wondering about any of the issues mentioned above? Please email us at info@wilkinsonlawllc.com or call (732) 410-7595 for assistance.

At Wilkinson Law, we give business owners the clarity they need to fund, grow, protect, and sell their businesses. We are trustworthy business advisors keeping your business on TRACK: Trustworthy. Reliable. Available. Caring. Knowledgeable.®

FAQs

If I’ve Already Paid for a Service the Buyer Will Use, Do I Automatically Get Reimbursed?

No. Reimbursement is not automatic. It must be negotiated and reflected in the asset purchase agreement, typically through a purchase price adjustment or closing statement. Without clear language, the Buyer legally receives the benefit, and you may walk away with the loss.

Can the Buyer Refuse to Pay a Vendor Invoice That I Forgot to List?

Yes, and in most asset deals, they’re within their rights. Unless the Buyer explicitly agrees to assume a liability, and that agreement is backed by a schedule, you remain responsible. If they choose to pay it, it’s often under protest, and you may be legally pursued afterward.

What’s the Difference Between How This Works in an Asset Sale Versus a Stock Sale?

In a stock sale, the legal entity remains intact, so liabilities (including vendor obligations) stay with the company and follow through automatically. In an asset sale, the Buyer only acquires specific assets and must expressly agree to take on any liabilities. The default assumption is: liabilities stay behind.

What Happens if I Forget to Include a Prepaid Vendor Expense?

The Buyer will likely retain the benefit, and unless you negotiated a blanket reimbursement clause or a general credit adjustment, you may have no recourse. It's a common oversight that can result in a material financial loss.