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What Is an Illinois Float Agreement and How Does It Work?

If you are involved in the sale of goods or services in Illinois, you may need to consider using a float agreement to manage the timing and risks of payment transactions. A float agreement is a legal contract between a buyer and a seller that allows the seller to receive payment before the buyer receives the goods or services, based on an agreed-upon time period during which the payment is delayed or “floated.” The purpose of a float agreement is to provide the seller with better cash flow and working capital, while enabling the buyer to defer the payment until they have a better financial position or have received the benefits of the transaction.

In Illinois, the use of float agreements is recognized by the Uniform Commercial Code (UCC), which governs commercial transactions between parties. According to Section 2-806 of the UCC, a seller may treat a buyer`s payment as conditional and hold it as a security interest if the parties have agreed in writing that the payment is to be made before the buyer receives the goods or services. This means that the seller can use the payment as collateral to obtain financing or other benefits, but cannot keep it for other purposes or options.

However, a float agreement must meet certain requirements to be enforceable in Illinois. First, it must be in writing and signed by both parties, indicating the amount of the payment, the date of the payment, and the time period during which the payment is delayed. The time period should be reasonable and related to the nature of the transaction, and should not exceed the statutory limit set by the UCC (usually 90 days). Second, the buyer should receive some form of consideration or benefit from the float agreement, such as a discount, a longer credit period, or improved delivery terms. Third, the float agreement should not violate any other laws or regulations, such as those related to consumer protection or antitrust.

To illustrate how an Illinois float agreement might work in practice, consider the following example. Suppose that a seller of construction materials agrees to supply a buyer with $10,000 worth of bricks, but the buyer cannot pay the full amount upfront due to cash flow issues. The seller proposes a float agreement that allows the buyer to pay $8,000 within 30 days after delivery, and the remaining $2,000 after an additional 60 days, with a 2% discount on the second payment. The buyer agrees to this arrangement, as it allows them to use the bricks for a current project and generates savings for them in the long run. The seller receives $8,000 soon after delivery and uses it to cover the costs of production and overhead, while also holding the promise of an additional payment as collateral or investment. The float agreement is recorded in writing and signed by both parties, and complies with the UCC and other legal requirements.

In conclusion, an Illinois float agreement can be a useful tool for managing payment risks and enhancing cash flow in commercial transactions. By following the legal and practical guidelines, buyers and sellers can benefit from this arrangement and avoid conflicts or losses. If you need assistance in drafting or reviewing a float agreement or other legal documents, you may wish to consult with a qualified attorney or professional and related fields.