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.

BREAKING DOWN '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.

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RELATED FAQS
  1. What's the difference between accrued expenses and provisions?

    Read about the differences between accrued expenses and provisions, and why a company might record one over the other in ... Read Answer >>
  2. What is the difference between forward and futures contracts?

    Fundamentally, forward and futures contracts have the same function: both types of contracts allow people to buy or sell ... Read Answer >>
  3. What does it mean to take delivery of a derivative contract?

    Find out more about derivative contracts and what it means when the holders of derivative contracts take delivery of the ... Read Answer >>
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