Actual collection required: Overview, definition, and example
What is actual collection required?
"Actual collection required" refers to the condition in which a payment, debt, or fee must be physically received or collected by a party before it is considered fulfilled or recognized. This term often applies in contexts such as accounts receivable, loans, or contractual agreements where the obligation is only deemed satisfied once the funds have been actually collected, as opposed to when they are merely promised or owed.
For example, a company may stipulate that an invoice is not considered paid until the full payment is received in their account, rather than when the customer simply commits to paying the amount.
Why is actual collection required important?
Actual collection required is important because it ensures that a transaction is fully completed. For businesses, it provides clarity about when revenue can be recognized or when obligations have been met. It also mitigates risks associated with uncollected debts and ensures that financial statements are accurate, as revenue is only recognized when cash is actually in hand or funds are physically transferred.
For parties to a contract or agreement, specifying that actual collection is required can prevent misunderstandings and protect against the risks of non-payment or delayed payment. It clarifies when a payment or obligation is considered final and legally binding.
Understanding actual collection required through an example
Imagine a supplier sells goods to a retailer, with payment due within 30 days of delivery. The agreement specifies that the supplier will recognize the payment only once the funds have been physically deposited into their bank account (actual collection required). Even though the retailer may have promised to pay, or issued a check, the supplier will not consider the payment made until the funds are collected and cleared.
In another example, a loan agreement might require that the borrower make monthly payments to the lender. The agreement may specify that the loan is considered fully repaid only when the lender has actually received the final payment, rather than when the borrower sends a payment or schedules a future payment.
An example of an actual collection required clause
Here’s how an actual collection required clause might look in a contract:
“Payment of all amounts due under this Agreement shall not be deemed to have been made until such amounts are actually collected by the Payee in the form of cleared funds in the Payee’s designated bank account. Any failure to provide actual collection by the required due date shall constitute a default under this Agreement.”
Conclusion
"Actual collection required" is a key concept in financial and contractual agreements, ensuring that a payment is only considered completed when the funds are physically received or collected. This requirement helps clarify when obligations are fulfilled and provides legal certainty to both parties involved in the transaction. By stipulating actual collection, businesses and individuals can protect themselves from unfulfilled promises and ensure that payments are properly recognized.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.