How the Money Flows and Why the Consortium Agreement Matters

For many organisations joining their first Horizon Europe project, one question quickly comes up: How does the grant money actually reach the project partners?

Unlike mono-beneficiary projects, where the European Commission pays the beneficiary directly, collaborative projects operate through a centralised payment system. The Commission transfers the grant to the project coordinator, who then distributes the funds among the consortium members.

This may sound straightforward, but the way these internal payments are organised can have a significant impact on the financial security of the entire project. That is why, alongside the Grant Agreement, the Consortium Agreement plays such an important role.

Payments in Horizon Europe projects

The payment schedule is defined in the Grant Agreement and usually consists of three main elements.

1. Pre-financing: the first payment provides the consortium with the liquidity needed to launch the project activities. Depending on the project, pre-financing may represent a substantial part of the total grant, sometimes even up to 80% of the maximum EU contribution.

2. Interim payments:  during the project, one or more interim payments are made following the approval of the periodic technical and financial reports. These payments reimburse eligible costs incurred during the reporting periods. The amount and timing depend on the reporting schedule established in the Grant Agreement. Normally, interim payments are limited to 90% of the grant amount, with at least the remaining 10% being paid only at the final stage.

3. Balance payment: The final payment is made after the project has ended and the final reports have been accepted. It is calculated based on the final approved eligible costs and the applicable funding rate, minus any pre-financing and interim payments already received by the consortium.

Why the Consortium Agreement is so important

The Grant Agreement regulates the relationship between the European Commission and the beneficiaries. The Consortium Agreement regulates the relationship between the beneficiaries themselves.

Although the coordinator is expected to transfer the funds to the partners in accordance with the payment schedule set out in the GA, the consortium may agree on additional safeguards and more detailed provisions governing how and when these transfers are made.

Good practices for payment clauses

Well-designed payment clauses should strike a balance between providing partners with sufficient cash flow and protecting the consortium against financial risks. The best payment mechanisms are usually those that follow the Grant Agreement but are tailored to the needs of the consortium.

The following approaches are commonly regarded as good practice:

1. Link payments to progress and eligible costs

Rather than distributing all funds immediately, payments may be linked to:

• eligible costs actually incurred,
• approved financial statements,
• achievement of milestones or deliverables,
• acceptance of technical work, and
• compliance with reporting obligations.

This helps prevent overfunding and supports the proper use of EU grant funds.

2. Require adequate financial documentation

Beneficiaries should maintain proper accounting records and supporting documents for all declared costs. The Consortium Agreement may require partners to provide appropriate evidence before additional payment instalments are released.

3. Manage pre-financing carefully

When substantial pre-financing is received, the consortium may split its distribution or retain a limited reserve at the coordinator level. Further payments can be made conditional on the technical and financial progress of each beneficiary and the proper use of previous instalments.

4. Protect the consortium

The Consortium Agreement may allow the coordinator to temporarily withhold, suspend or reduce payments when a beneficiary:

• fails to deliver its work,
• does not submit required technical or financial reports,
• cannot justify declared costs,
• breaches its contractual obligations, or
• otherwise creates a financial risk for the project.

A carefully prepared Consortium Agreement is therefore not only a legal document but also an important project management tool. It helps ensure smooth funding and avoid financial disputes allowing the consortium to focus on what truly matters – the successful delivery of the project’s objectives.

If you need support in preparing your Consortium Agreement and setting up the right payment structure, don’t wait – contact us at [email protected]