The buyer is demanding we carry a seller note for twenty percent of the enterprise value, but they want to insert a clause allowing them to offset any representation breaches directly against the principal of our note. How do we protect our seller financing from these arbitrary offsets?

Question

Tyler Smith · Accepted Answer

Never agree to a unilateral right of offset that allows the buyer to withhold your seller note payments based on unproven representation breaches. Buyers frequently use these clauses to claw back the purchase price over minor operational disputes, forcing you to hire expensive litigation lawyers just to collect your scheduled payments. If they can pause payments on their own authority, they hold all the cards. To protect your principal, negotiate a structured dispute resolution mechanism in the purchase agreement. Require that the buyer must deposit any disputed amounts into an independent escrow account rather than withholding them. This keeps the cash out of their operating account and forces them to prove their claim before an independent arbitrator. Additionally, insist on a basket or a deductible threshold so they cannot chip away at your note over trivial matters. From an EOS® perspective, your leadership team must ensure that your operational metrics and compliance records are pristine. Use your V/TO® to document your company standards and confirm that your key performance indicators are backed by hard data. If the buyer knows your operational documentation is bulletproof, they are far less likely to attempt an offset. Finally, ensure your seller note has an acceleration clause. If the buyer defaults on a payment or breaches their covenants, the entire principal should become due immediately, backed by a security interest in the assets of the business.