What Is Approval Basis?

Malcolm Tatum

An approval basis is a type of preliminary acceptance of goods and services, with the understanding that the recipient has the right to return those products and terminate the transaction within a certain amount of time. This type of conditional acceptance is common in a number of different types of business transactions, including the preparation and acceptance of various types of documents related to the transaction. The general idea behind an approval basis is to allow the recipient a window of time to evaluate the terms and conditions associated with the transaction and determine if he or she wishes to move forward with the activity.

Businessman giving a thumbs-up
Businessman giving a thumbs-up

As it relates to the selling of goods or services, the approval basis is usually included as a stipulation of the sale. Here, the buyer does receive the goods or services, along with an invoice for the products ordered. If the buyer determines that the products are defective in some manner or otherwise do not live up to expectations, they may be returned along with the invoice and the seller will receive the products back into inventory and consider the transaction canceled. Should the buyer find the products to his or her liking, then the transaction moved beyond the approval basis and payment is tendered for the order, either during or after the window of time granted for the approval period has passed.

The use of an approval basis for various transactions is not unusual. In decades past, some retail establishments would allow customers to receive certain goods on this type of basis, allowing them to try the goods for a short period of time before either returning the items or tendering payment for the goods. Even today, this approach is often used with the creation of contracts, in that a vendor may extend the pricing contained therein to a customer for a certain period of time while the customer evaluates the products offered and makes a decision of whether or not to sign the contract.

Part of the approval basis is a sense of conditional acceptance on the part of the buyer. There is usually a strong intent to complete the purchase, barring any issues that may be uncovered after the delivery of the goods and documents on approval basis takes place. The extension of this type of preliminary and conditional approval makes it easier for buyers to make informed decisions and thus avoid becoming entangled in a business transaction that ultimately is not in his or her best interests.

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