Delayed payment agreements are a very common form of commercial contract law in the UK. Whilst many people will simply assume that these are a type of fine, they are in fact a complete different form of legal system. In essence, they are a contract for a payment to be made within a period of one or two months yet, during this time, the goods are still expected to be delivered. Delayed payment agreements can be an extremely useful tool when undertaking certain types of commercial projects, however it is not as widely used as other forms of contract law such as a standard contract.
The most common way that a delayed payment agreement is used is in situations where a project is due to start and the end date is pushed back. If the company that is building the project does not have the money available at this last minute, they may enter into this agreement whereby they will pay for the materials to be bought up until the agreed date of the completion of the building. This means that the end date is pushed back yet the work is carried out.
In order to understand how delayed payment agreements work, it helps to take a look at how companies that are undertaking certain projects to build new office buildings or major buildings will enter into this type of agreement. For example, if you are working on the set design of a new office building, then you will be required to have a set date of when the building will be finished by. Typically this will happen six months before the end of the building’s schedule. If you do not have the money available at this time, then the company will agree to pay for the extra amount needed so you have a build date to go by.
The way that a delayed payment agreement works is that the company that needs the funds to pay for the materials needed to build the building will enter into an agreement with you. At this point you will agree to pay the company for the additional amount needed as well as a specified period of time. In the event that the company is unable to receive the money that is needed to complete the job on the agreed upon date, then you will have the option to pursue collection on your contract. Essentially, this means that you will be responsible for the payments that the company owes you in the six months up to the time the project is complete.
In many instances, a delay on the building project that you had approved may also be caused by you paying your subcontractor. In this case, you would be entering into a delayed payment agreement with the company that was paying for the materials and labor involved in the construction project. In the event that you do not receive the payments on time, then the subcontractor could file a suit against you. Depending on the state, you may be held liable for the entire amount of the suit and any interest that is assessed as well.
The next scenario that describes how a delayed payment agreement can affect your cash flow later is one that involves a building project that has already been started. In this instance, it is common for a cash flow plan to include a provision that provides for accelerated payments. In essence, the provisions written into the contract define a future payment of arrears to be received for the total sum of the total amounts owed for the balance of the building project. The problem with these types of provisions is that often the companies that are paying for the materials and labor that are involved will be the same companies that have been providing payments on time. Therefore, it is common for companies to start the payment process for the materials and labor but then become very late in making the final payments.
Another example of how a delayed payment plan can impact your cash flow later comes from the possibility of entering into a bill payment plan. A bill payment plan is one in which the company sends all of the bills that have been outstanding until a certain date in the future. When the due date for the bill payments occurs, the company that was in charge of paying the bill makes a deposit on the agreed upon date and that deposit is applied to the delinquent balances.
There are three important points of note that are addressed in this discussion. First, the arbitration hearing is a separate event from the negotiation process that takes place at the same time. Second, in the event that a dispute over the terms of the contract arises at any point during the course of the construction, both parties must agree to abide by the provisions of the contract. Finally, there is a duty of care that must be met by the parties hereto. Failure to do so is considered a breach of the fiduciary responsibility.