My Customer Was Acquired—Now, What?

The news drops out of nowhere—your customer is being acquired. Cue the uncertainty. Will they pay on time? Will credit terms change? Will the new owners honor their credit terms?
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The truth is, mergers and acquisitions (M&A) can present both risks and opportunities when it comes to credit. Here’s how to navigate the complexities of M&A situations and ensure you’re not left in the dust.

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➡️ Assess the New Entity's Finances

The first step is to look at the financial health and details of the acquiring company. It's tempting to assume that bigger means better, but we all know that's not always the case. An acquiring company may be financially stronger or it could be taking on a lot of debt to complete the deal.
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Here's what to do:
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• Get the new financials: Request updated financial information for the acquiring company. Look at their balance sheet, cash flow, and profitability. If you can’t access them directly, check public filings if they’re a publicly traded company.
• Reassess credit terms: If the acquiring company is financially sound, it may be a good time to revisit your credit terms, potentially extending more favorable conditions. If they’re struggling with debt or integration costs, you may want to be more cautious.

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➡️ Understand the Acquisition Structure

Not all acquisitions are the same. It’s crucial to understand whether your customer is being absorbed into the acquiring company (a stock or asset deal), or if they’re operating as a standalone entity after the acquisition. This will give you insight into how likely it is that your credit terms and the customer relationship will change.
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Here's what to do:
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• Clarify the deal terms: Will the acquiring company assume all debts and liabilities? Or are you left to deal with the customer’s old credit obligations separately?
• Review the transition plan: If the business is being integrated, the changeover may cause delays in payments or disrupt operational flow. Ask about any transition periods and how the acquiring company plans to manage existing vendor relationships.

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➡️ Evaluate their Payment Reputation & History

While you might be focused on the financials of the acquiring company, don’t forget about the customer’s history. If the customer has a reputation for timely payments and good creditworthiness, it could be worth negotiating continued favorable terms. However, if there were warning signs before the acquisition (e.g., late payments, financial instability), you’ll want to tread carefully.
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Here's what to do:
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• Review payment history: Analyze your customer’s payment patterns, especially in the months leading up to the acquisition. If they’ve been struggling, it might be a sign that they were relying on external capital or making last-ditch efforts to stabilize.
• Assess customer risk: If the acquiring company is taking on a lot of risk or burden from the purchase, consider tightening your credit terms or even requiring upfront payment until things stabilize.

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➡️ Communicate, Early and Often

A sudden M&A event can leave you feeling out of the loop. Stay proactive by reaching out to your point of contact at both companies. Understand their plans for the transition and ask specific questions about how your credit terms and payment schedules will be affected.
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Here's what to do:

• Set up a meeting: Schedule a call or meeting with both the acquiring company and the customer’s team to discuss any potential changes to payment schedules or credit arrangements.
• Document everything: Get any agreements or changes to terms in writing so you’re clear on the future of the relationship.

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➡️ Look for Opportunities to Strengthen the Relationship

Let's look at the flip side. A larger, more financially stable acquiring company might open doors to more business or larger orders. If the new company sees value in your products or services, they may want to deepen the relationship.
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Here's what to do:
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• Negotiate for better terms: If the acquiring company’s financials are solid, it could be an opportunity to renegotiate your terms. You may also want to offer volume discounts or early payment discounts to build goodwill.
• Pitch your value: Use this time to position your services as a trusted partner for the newly merged entity. Highlight any strengths or value propositions that could be even more relevant in the new organizational structure.

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➡️ Monitor the Transition Period Closely

The period following the acquisition can be a time of instability as the new company works to integrate systems, staff, and financial operations. During this time, credit risks can increase as both companies adjust.
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Here's what to do:
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• Track payment behavior: Pay close attention to how the acquiring company and the new merged entity handle payments. If they’re delayed or inconsistent, take action quickly and remind them of the new expectations.
• Stay flexible: Be prepared for some bumps during the transition. If payments are temporarily delayed or there are operational hiccups, stay flexible but keep communication open.

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➡️ Be Prepared for Post-Acquisition Surprises

Sometimes, the worst-case scenario does happen, and you find yourself stuck with bad debt or a customer that no longer meets your credit terms. In such cases, it’s critical to act fast and protect your position.
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Here's what to do:
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• Assess your credit risk exposure: Consider your exposure across your entire customer base. If a significant customer has been acquired, you may want to review the rest of your portfolio to identify other customers who might present similar risks.
• Leverage legal safeguards: If you have secured credit through liens, guarantees, or other mechanisms, make sure they’re enforced properly. Also, keep an eye out for any changes in your customer’s legal structure that may affect your standing.

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Final Thoughts

When a customer is being acquired, it’s easy to feel like you’re playing catch-up. But with the right strategies, you can manage the risks and even uncover new opportunities for growth. Stay informed, proactive, and communicate often to ensure that your credit decisions are well-aligned with the evolving business landscape.

Don't worry—you've got this!

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