Clawback

Definition

A right to take money back once the results behind it fail to hold.

Why It Matters

It turns up wherever cash moves before the facts are final: an earnout paid on a quarter that later reverses, a distribution to investors a later loss makes excessive, or a commission on revenue that never collected. The version worth having is the one written into the purchase agreement, because recovering money from a seller who has already spent it is a lawsuit, while withholding it is a deduction. Ask what actually backs any clawback you are offered.

In numbers: A $150,000 earnout paid on a record quarter that later reverses is recoverable only if the agreement says so, while the same $150,000 held in escrow for 12 months needs no lawsuit at all.