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Client Alert

August 7, 2020

Prepayment Transactions

Prepayment transactions involve the buyer of a product arranging lump-sum payment in advance for future supply of that product. They are commonly used as a financing tool in the commodities industry, including oil, metals and agricultural commodities, but the structure is inherently flexible and has been used in other sectors, including in shipping to finance the completion of vessels for delivery.

In the context of commodities, the prepayment is typically repaid over time through delivery of the relevant product. Transactions of this kind have become an increasingly important source of finance at a time when it is more difficult for commodity suppliers to fund themselves through the traditional banking system.

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