Payable on demand: Overview, definition and example
What is payable on demand?
Payable on demand means that a debt, loan, or payment must be made immediately when the creditor or lender requests it. There’s no fixed repayment schedule; instead, the payment is triggered by the demand of the party owed.
For example, a business might borrow money under a loan agreement labeled as payable on demand. The lender can request repayment at any time, and the borrower must pay back the full amount when asked.
Why is payable on demand important?
Payable on demand is important because it gives the lender flexibility and control over when they receive repayment. For the borrower, it means staying prepared to repay the debt at any time, which can create uncertainty if cash flow is tight.
In business, this type of arrangement is common in short-term loans, lines of credit, or financial agreements where immediate liquidity is needed. It’s a useful tool, but it requires careful planning to avoid financial strain.
Understanding payable on demand through an example
Imagine a small business secures a line of credit from a bank to manage short-term expenses. The agreement states the credit is payable on demand, meaning the bank can require repayment of any borrowed funds at any time. The business must always have sufficient funds or assets to cover the amount owed in case the bank demands repayment.
In another case, a company borrows $50,000 from an investor under a payable-on-demand agreement. If the investor suddenly requests repayment, the company must return the $50,000 immediately, regardless of other financial obligations.
An example of a payable-on-demand clause
Here’s how a payable-on-demand clause might look in a loan agreement:
“The Borrower agrees that the outstanding balance of the loan shall be payable on demand at any time, in whole or in part, upon the written request of the Lender.”
Conclusion
Payable on demand refers to debts or loans that must be repaid immediately when requested by the lender or creditor. While it provides flexibility for the lender, it requires the borrower to stay financially prepared at all times.
By understanding payable-on-demand terms, businesses can effectively manage their cash flow and assess whether this type of financial arrangement aligns with their needs and risks. It’s about balancing convenience with readiness.
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.