Question about Prepayment of Contracts 942

  • We are attempting to prepay a 3 year contract. As a not-for-profit we do not wish to carry debt forward, and can pay the full amount this year. The vendor does not wish to accept the entire amount citing SOX.
    The invoice for the first year is paid in advance; I don’t understand how SOX would have an impact on paying three years in advance, versus one year in advance.
    Could someone help me understand?

  • This looks like another case of someone using SOX as an excuse / reason for achieving their ends.
    To the best of my understanding prepayment of a contract is in no way related to SOX. I think that your Vendor has some other reason for not wanting to accept prepayment and he is just using SOX as an excuse.

  • As long as prepayment are part of business practices and it is going to be recorded properly in the accounts (balance sheet - assets of course) and then a prorata taken every month during the contract duration, there will be no risks or weaknesses for SOX.
    For sure other reasons to be given to explain such management behavior…

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