A take-or-pay contract is a rule structuring negotiations between companies and their suppliers. With this kind of contract, the company either takes the product from the supplier or pays the supplier a. For any product the company takes, they agree to pay the supplier a certain price, say $50 a ton. Furthermore, up to an agreed-upon ceiling, the company has to pay the supplier even for products they do not take. This “penalty” price is lower, say $40 a ton.
Take or Pay
What is ‘Take or Pay’
Take or pay is a provision, written into a contract, whereby one party has the obligation of either taking delivery of goods or paying a specified amount.
Explaining ‘Take or Pay’
This is used in some contracts as a method to ensure that the transaction occurs. For example, a Banana farmer will enter into a take or pay contract with a fruit retailer so that the retailer will buy all the bananas from the farmer or pay a provision for not buying them.
Take Or Pay FAQ
What is a put or pay contract?
What is a payment provision?
What is a throughput agreement?
What is a penalty clause?
What is a minimum volume commitment?
What is a take or pay provision?
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