Deferred Consideration

Definition

With deferred consideration the amount is fixed but the timing is not: part is paid at closing and the rest in one or more later instalments. This bridges a funding gap for the buyer or provides comfort over the transition, without the performance-dependence of an earn-out.

For the seller the core risk is buyer credit risk: can and will they pay later? Deferred consideration is therefore often paired with security: a bank guarantee, a pledge over the shares, or an escrow. A vendor loan is a specific form where the seller formally lends the deferred amount, usually with interest.

When it matters

Deferred consideration appears when the buyer cannot fund the full price in cash. Sellers should price in the discount for deferral (time value + risk) and demand security; a promise without a guarantee is not a price.

Frequently asked

How does it differ from an earn-out?

With deferred consideration the amount is fixed and only the timing is later; with an earn-out the amount depends on future performance (revenue, EBITDA). Deferred consideration carries credit risk; an earn-out carries performance risk.

What security can I ask for as a seller?

A bank guarantee, a pledge over the transferred shares, an escrow account, or a personal guarantee from the buyer. Without security you carry the buyer's full insolvency risk.

Is deferred consideration taxed differently?

The tax treatment of a staged price depends on the structure and jurisdiction. Always have it reviewed by a tax advisor in advance; the timing of taxability can vary significantly.