In some cases, the amount of the payment will be related to the outputs delivered, and so may be performance-related. This presents significant additional risk for the charity as they may have to borrow to fund activities while the service is being delivered and they may not receive payment to cover all their costs.

The guidance to funders suggests that funding bodies may wish to build in some incentives so that service providers deliver high quality outputs, so some element of funding may be withheld subject to review. It explains that voluntary sector providers should be prepared to bear the risk for the quality of services delivered as this is within their control. Funders have a responsibility to achieve value for money and so this is reasonable. Funders and service providers jointly share the risk that the demand for services will not meet expectations. The funder should research the level of demand sufficiently and this element of risk should chiefly be borne by the funder.

So performance-related payment is within the good practice set out for government funding bodies, providing this relates to the quality of outputs rather than volume, where the demand for a service is outside the control of the provider. This should be part of the negotiation over the payment schedule.