Factoring Companies Guidebook
'Pay When Paid' Contracts
Definition
This is a phrase frequently used by debtors when being chased for payment. However, in this context it refers to a contractual obligation, where the debtors are only obliged to pay the supplier when they have received payment themselves.
See also: - Contractual Sales
Concerns
This may be difficult to identify as the actual clause may be one or more steps removed from the immediate debtor, so there may be an overriding contractual liability right through to the final supplier, which is not itemized in the subsequent contracts.
The scale of any single contract may be such that if the Client's debtor is not paid, the Client may be forced out of business and the Factor may be unable to recover the finds advanced. There is little chance of any amendments by any supplier to the standard terms of the overriding contract.
Identification
Review contracts, terms and conditions of sale and enquire with the Client. However overriding clauses may appear in contracts to which access is not available.
Treatment
Where identified, any invoices subject to such clauses should be excluded. Generally this type of contract is likely to appear within the Construction Industry.
