Deferred consideration

In plain English

A buyer may agree a price but pay some of it later: in six months, a year, or in instalments over two or three years. That later part is deferred consideration. Unlike an earnout, it does not usually depend on hitting targets. The seller is owed the money; the question is whether and when it will be paid.

Deferred consideration and earnouts

The two are often confused. Deferred consideration is a fixed debt payable later. An earnout is a contingent amount that may or may not become payable depending on agreed conditions. Both are forms of consideration paid after completion, and both carry risk, but the nature of the risk is different: with deferred consideration the risk is the buyer's ability and willingness to pay; with an earnout the risk is also whether the conditions are met.

Why it matters

Buyers use deferred consideration to manage cash, to retain some use if claims arise and sometimes to encourage sellers to stay engaged. Sellers accept it as part of reaching an agreed total, but they should understand that money not received on completion is money at risk, and should consider what protection is available.

What to watch for

• Ask about security: guarantees from a parent company, escrow arrangements or charges over assets.
• Check whether the buyer can set off warranty claims against deferred amounts, and on what terms.
• Consider what happens if the buyer is sold or becomes insolvent before payment.
• Understand the tax treatment of amounts received in later years, which varies by jurisdiction.

Transaction language and legal treatment depend on the agreement and the jurisdiction. Written by Motion Advisory Partners as general guidance, not legal advice.