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last updated: 3rd January 2020

This is where, for example, changes to payment terms, such as staged payments or retentions, will result in a reduction in both cost and risk. This type of efficiency is likely to be a one-off and should not, therefore, be extended over the life of the purchase.

Note: In general 'up-front' ie pre-payments should be avoided due to the risk of your institution becoming a creditor in the event of liquidation. However, where they are made, it is strongly recommended that a Banker's Guarantee be obtained to cover the value of the 'up-front' payment.  

Examples of risk reduction include:

R1 - Payment with order reduced/deferred, calculated on pro rata basis:
       [delivery lead time x interest on advance payment]

R2 - Retention of final payment until satisfactory acceptance, calculated on pro rata basis
       [(installation period + period of non acceptance) x interest on retention sum]

R3 - Staged payments, calculated on pro rata basis
       [balance of the contract sum x interest on the remaining period of staged payment, pro rata]

R4 - Title and risk with supplier until final acceptance, based on the value of insurance premiums, security, double handling, off-loading costs, etc

R5 - Liquidated damages ie costs recovered for non-performance etc.

R6 - Reduce risk of loosing stage payments should the supplier default on contract

R7 - Other

R8 - Not specified

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