What is an overdue invoice?
An overdue invoice is a type of financial instrument that functions as a delivery notice that is delivered at the time when an amount is transferred from a seller's possession to a buyer. The contents of the invoice serve to document the terms and conditions relating to the delivery of securities by a seller to the purchaser of these assets. Depending on the type of title involved, the good may be delivered with an overdue invoice attached, indicating the seller's responsibility to deliver the product to the buyer as the new owner.
The exact contents of an overdue invoice will vary depending on the circumstances surrounding the purchase of an asset. Typically, the document will include information about the date of sale, the names and contact information of the buyer and seller, and the exact terms of purchase. This helps ensure that all terms related to the purchase, including the proper disposition of future dividends associated with the asset, are fulfilled in a timely manner.
A common example of how an overdue invoice works can be seen with the purchase of a guarantee occurring before the ex-dividend date associated with that guarantee, but with delivery of the guarantee delayed until after the release date associated with the guarantee. . As part of the purchase, the purchaser receives rights to the payment of outstanding dividends relating to these shares. When this dividend payment is issued, an invoice is attached to that payment and sent to the seller, which serves as official notification that the seller must forward this payment to the new owner.
If the purchase of the security occurs after the ex-dividend date, this means that the buyer purchased the asset without requiring the seller to also present the next dividend as part of the agreement. Assuming the dividend is forwarded to the buyer after the record date, there may be a pending invoice attached indicating that the dividend must be sent to the seller. In many nations, the exact content of the financial instrument will be structured to comply with government regulations that may apply to the terms of sale and the construction of the document itself.
Not all asset or security sales require the use of an overdue invoice. In situations that do not involve the transfer of rights to an imminent dividend or payment of interest to the purchaser, the instrument may or may not be issued, depending on local laws and customs. Brokers and other financial professionals can advise buyers and sellers on whether an overdue invoice is appropriate for the type of transaction being considered.