In Finance, what is a Fall Down?

Fall downs are situations in which it becomes impossible to deliver goods, services, or any other type of return as promised. Generally, the inability to make the delivery comes about due to circumstances that are not within control of any party involved in the transaction. A fall down can take place as part of a business contract, or involve some type of investing activity.

With a business arrangement, a fall down involves the inability of a supplier or vendor to deliver the products that were promised. There are several reasons why this may take place, but the most common is because the business partners that the vendor relies on to supply the raw materials for the products fails to deliver on time. For example, a clothing manufacturer may find itself unable to fill an order for ten thousand coats because their supplier is unable to deliver the fabric needed for the garments. This creates a situation where the manufacturer has to inform the client that the order cannot be filled according to the terms of the original contract, and attempt to work out an alternate solution.

A fall down can also take place when it comes to the delivery of services. If a fiber cut or some type of natural disaster makes it impossible for a call center at a teleconferencing bureau to process inbound and outbound connections, the conference call service is unable to host teleconferences for its clientele. Until the issue is addressed and resolved by the vendors providing telephone connectivity to the bureau, it is unable to provide teleconferencing services to any of its customers, regardless of what type of contractual agreement exists. Unless the bureau has some sort of working agreement with another conference call bureau to run customer traffic until the crisis has passed, the service delivery will simply not take place.

With investing, a fall down has to do with the failure of an investment to generate the anticipated rate of return that was projected prior to the purchase of the stock, bond, or other option. In most cases, this situation occurs because of changing market conditions that are beyond the control of the investor or the brokerage. Many investors allow for some amount of fall down when deciding which investments to acquire or to hold. This is because changes in the financial market can take place for reasons that are not readily predictable. Those reasons include situations like a sudden change in leadership at a major company, unanticipated outcomes of political elections, and unforeseen natural disaster.