Fixed Price Agreement Definition
A Fixed Price Agreement (FPA) is a contract between a buyer and seller that establishes the price of a product or service at a set rate. This type of agreement is often used in situations where the buyer wants to lock in a price for an upcoming purchase, or when the seller wants to guarantee sales at a certain price point.
FPAs can be helpful in managing risks associated with price fluctuations, but they can also create challenges if the market changes unexpectedly. For example, if the market price of a good decreases after an FPA is signed, the seller may lose money on the transaction. Similarly, if the market price increases, the buyer may end up paying more than they would have without an FPA.
When creating an FPA, it is important to carefully consider all potential scenarios that could affect prices. This includes things like seasonal trends, supplier availability, and global economic conditions. By doing this analysis upfront, both parties can be sure that they are comfortable with the risks involved before signing on the dotted line.
