Forward Commitment

A forward commitment is a procrastinator’s contract: a contract between two parties (a buyer and a seller) that will be done at a future date. The contract lists what will be sold to whom, for how much, when payment will be complete, and when the goods will arrive on the buyer’s doorstep.

Forward commitments are used in lots of situations, like futures contracts and some types of derivative investments.

They aren’t about people not wanting to be last-minute...they’re about certainty. Forward commitments make both buyer and seller commit to the current price of whatever is being sold. If you were buying large quantities of a commodity that’s important for your business...like steel...then you’d be happy you made a forward commitment in the past when the news drops that steel tariffs will drive up steel prices. Because you locked in the old price, you’re not even breaking a sweat. Phew.