Payment-In-Kind (“PIK”)
What It Means
Payment-In-Kind, or “PIK”, refers to non-cash compensation in lieu of a cash payment. Often, these payments take the form of additional securities, such as compounding interest, that increases the size of the total debt obligation.
Why It’s Important
Seller Financing often includes terms that offer payment in the form of PIK interest. In these loans, the accrued interest compounds along with any remaining principal until scheduled payments are made (e.g. quarterly, annually, etc.). Buyers will often seek to push the timing of cash payments out as far into the future as possible because cash payments are made out of the company’s operating funds.