Future goods, sale of

A sale of future goods refers to a contractual agreement in which the seller agrees to supply goods that will be manufactured, grown, or acquired at a future date.
Written by
Reviewed by
Updated on Jun 17, 2024
Reading time 6 minutes

3 key takeaways

Copy link to section
  • A sale of future goods involves a contractual agreement to supply goods that are not currently in existence but will be produced or acquired in the future.
  • This type of sale is common in industries where goods are custom-made, grown, or otherwise not available at the time of the contract.
  • Legal provisions govern the sale of future goods to protect the interests of both the buyer and the seller and ensure that contractual obligations are met when the goods become available.

What is a sale of future goods?

Copy link to section

A sale of future goods is a contract where the seller agrees to deliver goods that are not currently in their possession but will be produced, manufactured, grown, or otherwise acquired at a later date. These contracts are used when the goods in question do not exist or are not ready for delivery at the time of the contract but will be available at a specified future date. The agreement includes terms regarding the description, quality, quantity, price, and delivery date of the goods.

Importance of sale of future goods

Copy link to section

Custom production: Allows for the sale of goods that need to be custom-made or specially manufactured according to the buyer’s specifications.

Agricultural produce: Facilitates the sale of crops or livestock that will be grown or raised in the future, providing farmers with a market for their produce before it is harvested.

Market stability: Provides businesses with the ability to secure orders and manage production schedules based on future demand, contributing to market stability.

Financial planning: Helps both buyers and sellers plan their finances and manage cash flows by securing future sales and purchases.

How a sale of future goods works

Copy link to section
  1. Contract formation: The buyer and seller enter into a contract specifying the details of the future goods, including description, quality, quantity, price, and delivery date.
  2. Production or acquisition: The seller undertakes the necessary steps to produce, manufacture, or acquire the goods as per the contract terms.
  3. Delivery: Once the goods are ready, the seller delivers them to the buyer according to the agreed terms.
  4. Payment: The buyer pays for the goods as stipulated in the contract, which may be at the time of delivery or through a pre-agreed payment schedule.

Examples of sale of future goods

Copy link to section

Custom manufacturing: A company contracts a manufacturer to produce specialized machinery that will be delivered in six months once the production process is complete.

Agricultural contracts: A farmer agrees to sell a specific quantity of wheat to a grain buyer before the planting season, with delivery scheduled after the harvest.

Pre-sale of real estate: A developer sells units in a building that is still under construction, with the agreement that the units will be delivered once the construction is completed.

Made-to-order products: An individual orders a custom piece of furniture from a craftsman, with the agreement that the furniture will be delivered after it is built.

Advantages of sale of future goods

Copy link to section

Custom solutions: Enables buyers to order products that meet their specific requirements, which might not be available as off-the-shelf items.

Market access for producers: Provides producers, such as farmers and manufacturers, with a guaranteed market for their future goods, reducing the risk of unsold inventory.

Price stability: Helps both buyers and sellers lock in prices, protecting against future price volatility in the market.

Supply chain management: Allows businesses to plan and manage their supply chains more effectively by securing future supplies and coordinating production schedules.

Disadvantages of sale of future goods

Copy link to section

Uncertainty and risk: There is a risk that the goods may not be produced or acquired as expected due to unforeseen circumstances, such as natural disasters or supply chain disruptions.

Quality and specifications: Ensuring that the future goods meet the agreed-upon specifications can be challenging, particularly if there are changes in production processes or materials.

Contract enforcement: Disputes may arise if one party fails to fulfill their contractual obligations, requiring legal action to resolve.

Market changes: Changes in market conditions, such as fluctuations in demand or price, can impact the feasibility and profitability of the contract for both parties.

Managing the sale of future goods

Copy link to section

Detailed contracts: Ensure that contracts for future goods are detailed and clearly specify the terms, including descriptions, quality standards, delivery dates, and payment terms.

Risk management: Implement risk management strategies to address potential production or supply chain disruptions, such as diversifying suppliers or obtaining insurance.

Regular communication: Maintain open and regular communication between the buyer and seller to monitor progress and address any issues that may arise during the production or acquisition process.

Legal provisions: Include legal provisions in the contract to handle potential disputes and enforce contractual obligations, such as arbitration clauses or penalties for non-performance.

Copy link to section

To further understand the concept and implications of the sale of future goods, consider exploring these related topics:

  • Contract Law: The body of law that governs agreements and enforceable promises, including the sale of future goods.
  • Supply Chain Management: The management of the flow of goods and services from production to delivery to the end customer.
  • Risk Management: The identification, assessment, and prioritization of risks, and the application of resources to minimize and control the probability or impact of unfortunate events.
  • Agricultural Contracts: Agreements between farmers and buyers regarding the future sale of crops, livestock, or other agricultural products.
  • Custom Manufacturing: The production of goods tailored to the specific needs and specifications of the buyer.

Understanding the sale of future goods is essential for businesses and individuals involved in custom production, agriculture, real estate, and other industries where goods are not immediately available. Exploring these related topics can provide deeper insights into the legal, operational, and risk management aspects of future goods contracts.


Sources & references

Arti

Arti

AI Financial Assistant

  • Finance
  • Investing
  • Trading
  • Stock Market
  • Cryptocurrency
Arti is a specialized AI Financial Assistant at Invezz, created to support the editorial team. He leverages both AI and the Invezz.com knowledge base, understands over 100,000 Invezz related data points, has read every piece of research, news and guidance we\'ve ever produced, and is trained to never make up new...