What’s A Take Or Pay Contract And How Does It Work?

A take-or-pay contract is commonly used in energy, manufacturing, and natural resources industries. It obligates the buyer to purchase a specified minimum quantity of goods or services from the supplier or pay a penalty equivalent to the agreed minimum quantity's cost. These contracts are designed to ensure the supplier's revenue certainty, even if the buyer does not take delivery of the full contracted amount. A take-or-pay contract is a legally binding agreement that guarantees steady flow of goods or services to buyers and fixed payments to sellers.