Very few UAE SME transactions in the AED 2 to 10 million range settle in a single wire on completion day. Some part of the price is almost always paid later, and in this market the instrument that carries it is usually a set of post-dated cheques. Owners tend to treat that as a formality agreed near the end. Buyers tend to treat it as the part of the deal that actually protects them. It is worth understanding properly, because the structure of the deferred piece frequently matters more to what a seller receives than the headline multiple does.
Why the whole price is rarely paid at completion
A buyer of an owner operated business is buying something that has never existed without its owner. Customer relationships sit in one person's phone. Supplier credit was extended on a handshake. The staff show up for a founder they have worked with for a decade. None of that transfers on the day the share transfer is signed, and a buyer who pays in full on that day has bought a promise and has no way to enforce it afterwards.
Deferred consideration is the answer to that problem. It keeps a portion of the price outstanding for a defined period, so that if the business the buyer was shown turns out not to be the business they received, there is money still on the table that can be adjusted, withheld, or set off. Sellers dislike this instinctively, and the instinct is reasonable, because a seller who has handed over a company and not been paid is in a weaker position than one who has been paid and handed over nothing. The whole negotiation is about how that risk gets split.
What a post-dated cheque actually is here
A post-dated cheque is a cheque drawn today and dated for a future day. In UAE practice they are the default carrier of deferred payment obligations in SME deals, largely because they are simple, familiar to every party, and give the seller something physical to hold rather than a contractual promise alone.
Their weight in law has moved. The treatment of a dishonoured cheque under UAE law was amended in recent years, and the remedies available to a holder are not what many owners in this market still believe them to be. That is exactly the sort of question we flag to counsel rather than answer ourselves, and any seller relying on cheques as their primary protection should have their lawyer confirm the current position in writing before signing anything. What we can say from process experience is narrower and still useful: a cheque is evidence of an obligation and a mechanism for collection, and it is not a substitute for drafting the obligation properly in the sale and purchase agreement.
The practical implication is that the cheques should mirror the agreement, never replace it. Every cheque needs a corresponding clause in the SPA that states what it is for, when it becomes payable, what conditions attach, what happens if it is not honoured, and what happens if it is presented early. Cheques handed over without that scaffolding are the most common way a seller ends up holding paper that is difficult to enforce and a buyer ends up facing a claim they thought they had settled.
Sizing the deferred piece
There is no fixed convention, and anyone who tells an owner there is one is selling something. What determines the split is how much of the risk in the business is genuinely transfer risk.
A business with contracted, documented revenue running for years, a management layer that already runs operations, and an owner whose departure changes very little, can reasonably be argued to a high cash proportion at completion. A business where the founder is the salesforce, the top three customers account for most of the revenue, and nothing is under contract, will carry a much larger deferred component, because the buyer is exposed to almost all of the risk in the first year and knows it.
We advise owners to argue this on evidence rather than on principle. Bringing contracted revenue, a documented handover plan, and named customer relationships that already sit with someone other than the owner will move the cash proportion further than any amount of insisting. So will accepting a shorter deferral at a larger cash figure rather than a longer one at a smaller figure, which is often available and rarely asked for.
Deferral is not the same as an earn-out
These get conflated constantly and they behave very differently.
Straight deferred consideration is a fixed sum payable on a fixed date, subject only to defined set offs such as warranty claims or a completion accounts adjustment. The seller knows the number. The only uncertainty is collection.
An earn-out is a variable sum that depends on the business hitting agreed measures after completion, when the seller no longer controls the business. The seller does not know the number, and in an owner operated SME they usually have no ability to influence it either. We are cautious about earn-outs in this market for that reason. Where one is unavoidable, the measure should be as close to the top line as possible, because gross revenue is far harder for a new owner to reshape than profit is, and the agreement should specify how the business will be run during the earn-out period rather than leaving that to good faith.
The honest framing for a seller is this: treat any earn-out consideration as money you may not receive, and decide whether the deal works without it. If it does not, the deal is worse than the headline number suggests.
Security beyond the cheques
Cheques are the payment mechanism. They are not the only protection available, and a seller carrying meaningful deferred consideration should ask for more than paper.
Retention of a share of the equity until final payment is the strongest position, because an unpaid seller who still holds shares has a seat at the table rather than a claim. Buyers resist it and often for legitimate reasons, particularly where the buyer needs clean ownership for licensing or financing. A personal guarantee from the buyer, rather than a corporate obligation from a newly formed acquisition vehicle with no assets, closes a gap that surprises sellers late. A bank guarantee or an escrow arrangement moves the risk off the buyer's balance sheet entirely and is worth pricing into the negotiation as a concession the seller pays for in headline terms.
The choice among these depends on the buyer's profile. A funded strategic acquirer can usually provide a bank instrument. An individual acquiring a business for residency purposes generally cannot, and the realistic protections there are equity retention, a personal guarantee, and a shorter deferral period.
What we do with the cheques on a mandate
The cheques are drawn, scheduled, and reconciled against the agreement before completion, not on the day. Every cheque is matched to a clause and to a date. The full schedule is set out in a single table that both sides sign, so that no one is later working from a different version of what was agreed.
We attend completion. Cheques change hands at the same moment the share transfer is executed, and not before. The number of transactions in this market where documents are signed on the understanding that payment instruments will follow is high enough that this needs stating plainly: a seller who has transferred shares and does not hold the cheques has given away their only leverage.
Bank details, drawer accounts, and signatories are checked against the buyer entity named in the agreement. A cheque drawn on an account belonging to a party who is not a contracting party is a problem that is straightforward to fix beforehand and difficult to fix afterwards.
Where these structures fail
Three patterns account for most of the failures we see discussed in this market.
The first is a deferred component large enough that the seller has effectively financed their own exit without the protections a lender would insist on. If more than a modest share of the price sits behind cheques with no guarantee, no escrow, and no retained equity, the seller is an unsecured creditor of a business they no longer control.
The second is a set off clause drafted so widely that any dispute permits the buyer to stop paying. Set off should be limited to defined categories, capped, and time bound, and should require the claim to be substantiated rather than merely asserted.
The third is an earn-out with no operating covenants, where a buyer is free to restructure the business in ways that make the target unreachable without ever acting in bad faith. That outcome does not require anyone to behave badly. It only requires the agreement to be silent.
The question to ask before signing
Ask what you actually receive if the deferred consideration is never paid, and whether the deal still makes sense at that number. If it does, the structure is doing its job of splitting risk. If it does not, the price is not what the term sheet says it is, and that is worth knowing before completion rather than eighteen months later.
Our valuation service returns a written range in 48 to 72 hours once your figures are with us, and that range is built around achievable structure rather than a headline number alone. For how a mandate runs from a first conversation through to signature and completion, see our process. Owners who want to understand what a prepared file looks like from the buyer's side can start at UAE Exits.
Written by Joseph Coello, Founder and Principal, Coello Advisory.