Negotiable: Understanding Flexibility in Contracts and Agreements

The term “negotiable” is commonly referred to as the price of a good or security, or any other term or provision in a contract or an agreementSale and Purchase AgreementThe Sale and Purchase Agreement (SPA) represents the outcome of key commercial and pricing negotiations. In essence, it sets out the agreed elements of the deal, includes a number of important protections to all the parties involved and provides the legal framework to complete the sale of a property., that is not firmly settled between the parties and that can be adjusted. The negotiable price of a good or the negotiable term of an agreement can be modified depending on the prevailing circumstances.

For example, if a seller of a good states that the sale price is negotiable, he or she implies that, in some circumstances, the final sale price can be changed from the price initially stated.

Applications in Finance

In finance, the term negotiable comes with a specific connotation. It is usually referred to as a legal document or a financial instrument that can be used as a replacement for cashCashIn finance and accounting, cash refers to money (currency) that is readily available for use. It may be kept in physical form, digital form,. Essentially, a negotiable instrument guarantees the payment of a specific amount of money to the payer recognized on the paper.

The payment must be remitted either on demand or at a predetermined future date. The date is not a necessary feature for an instrument as the absence of a date cannot influence its negotiability.

Negotiable instruments are transferable by the endorsement (i.e., signed by the payer) and delivery of the document. Once a negotiable instrument is transferred from the payer to the holder, the holder obtains full and unconditional legal right to receive the amount of money specified in the document. The exact definition of a negotiable instrument is generally determined by the law, and the definition may vary from country to country.

Note that such instruments do not bear any other promises except the promise of unconditional remittance of the payment. At the same time, they cannot apply any other conditions upon the bearer to obtain the funds stated in the instrument.

Examples of negotiable instruments include cheques, money ordersMoney OrderA money order is a guaranteed form of payment for a specified amount that two parties can use as a form of payment in exchange for a given, promissory notes, drafts, and certificates of deposit (CDs). Among all the examples mentioned above, chequesHow to Write a CheckEven though digital payments are continually gaining more market share, it’s still important to know how to write a check. This guide shows you step by step are the most widely used type of negotiable instruments. Cheques are essentially the orders to a bank to remit the payment to their holder using the funds from their issuer.

More Resources

CFI is the official provider of the global Financial Modeling & Valuation Analyst (FMVA)™Become a Certified Financial Modeling & Valuation Analyst (FMVA)®CFI's Financial Modeling and Valuation Analyst (FMVA)® certification will help you gain the confidence you need in your finance career. Enroll today! certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional CFI resources below will be useful:

• Business DealBusiness DealA business deal refers to a mutual agreement or communication between two or more parties who want to do business. The deal is usually carried out between a seller and a buyer to exchange items of value such as goods, services, information, and money.
• Personal GoodwillPersonal GoodwillPersonal goodwill is the intangible value that arises from the efforts or reputation of a business owner or other individual. It means that the value is only associated with the person working within an organization and not the business itself. In accounting and finance, goodwill is an intangible asset
• Interpersonal SkillsInterpersonal SkillsInterpersonal skills are the skills required to effectively communicate, interact, and work with individuals and groups.
• Negotiation TacticsNegotiation TacticsNegotiation is a dialogue between two or more people with the aim of reaching a consensus over an issue or issues where conflict exists. Good negotiation tactics are important for negotiating parties to know in order for their side to win or to create a win-win situation for both parties.