What Does “True-Up” Mean in a Contract?
A reconciliation process where estimated payments are adjusted to reflect actual usage, costs, or performance.
Detailed Explanation
True-ups reconcile estimates with reality. For example, if you prepay based on estimated usage, a true-up at year-end adjusts for actual usage—you might owe more or receive credit.
True-up provisions should specify timing, calculation methodology, dispute procedures, and payment terms. Without clear rules, true-ups can lead to significant unexpected bills.
Example in a Contract
“Within 30 days after each calendar year, Licensee shall provide a report of actual usage. If actual usage exceeds the prepaid quantity, Licensee shall pay for excess at the then-current rates. If actual usage is less, credit shall apply to the following year.”
Why It Matters
True-ups can create cash flow surprises. Understand when true-ups occur, how they're calculated, and what happens if you dispute the calculations.
Related Terms
Have a Clause with “True-Up”?
Paste your contract clause below for instant AI analysis. Get risk assessment, plain English explanation, and suggested improvements.