An Ordinary Course Of Business Meaning
Ordinary course of business means the usual way a business carries out its activities, judged in the context of the transaction and the rule or agreement being applied. An activity can be routine for a particular company yet fall outside a contractual restriction or fail a statutory requirement.
The phrase matters when deciding whether a payment has a bankruptcy defense, whether a business may carry out a transaction during bankruptcy, whether a seller has complied with a merger agreement, or whether a buyer receives particular protections when purchasing goods. It does not guarantee that a transaction is lawful or that the business has maintained its value.
Where ordinary course of business matters
Context | Main question | Important limit |
|---|---|---|
Bankruptcy preference payments | Does a challenged pre-bankruptcy payment qualify for the ordinary-course defense? | An ordinary debt is required first; the statute then offers alternative payment tests. |
Operating a business in bankruptcy | May an authorized business undertake a transaction without the notice and hearing required for an outside-course transaction? | Court orders and separate cash-collateral restrictions still apply. |
Merger agreements | Does the target's conduct comply with the particular pre-closing covenant? | The contract's definition, exceptions and consent provisions govern. |
Commercial sales under the UCC | Is this purchaser a buyer in ordinary course of business? | This is a defined buyer category with specific conditions and limited protections. |
“Normal course of business” is often used informally to describe routine operations. Do not assume it has the same effect as a defined “ordinary course” term in a contract or statute. Identify the operative wording before classifying the transaction.
Bankruptcy: ordinary payments and ordinary operations are different questions
The defense to a preference payment
In bankruptcy, a trustee may seek to recover a payment if the requirements for an avoidable preference are met. A payment made shortly before filing is not automatically recoverable merely because of its date.
11 U.S.C. § 547(c)(2) protects a qualifying transfer to the extent it paid a debt incurred in the ordinary course of the debtor's and recipient's business or financial affairs. After that requirement, the payment must satisfy either of these alternatives:
- It was made in the ordinary course of business or financial affairs of the debtor and recipient; or
- It was made according to ordinary business terms.
The first alternative concerns the parties' dealings. The second concerns business terms rather than requiring the payment to fit those parties' own history. They are alternative routes, not two requirements that every creditor must establish together. Section 547(g) places the burden of proving this defense on the creditor or other party against whom recovery is sought.
Example: A wholesaler repeatedly supplies a retailer on credit, and the retailer pays through the same method and on a broadly similar schedule as before. Those facts may support the parties' ordinary-course route. A sudden demand for a different payment method, security or much earlier payment calls for closer examination; it does not, by itself, settle every defense. The debt, transaction history, evidence of business terms and other statutory requirements must still be assessed.
Avoid treating “ordinary business terms” as a synonym for “this is what these two companies usually did.” Keep records supporting whichever statutory route is relied on.
Transactions while a business operates in bankruptcy
11 U.S.C. § 363(b) and (c) address a different issue: using, selling or leasing estate property. Section 363(b)(1) generally requires notice and a hearing for a transaction outside the ordinary course. When operation of the business is authorized, § 363(c)(1) allows ordinary-course transactions without that notice and hearing, unless the court orders otherwise.
Example: Buying the usual inventory needed to continue an authorized retail business may fit ordinary operations. Selling its entire operating business is a materially different transaction and should not be treated as routine simply because the company regularly sells individual products.
There is a separate restriction on cash collateral, such as certain cash proceeds subject to another party's interest. Under § 363(c)(2), its use requires consent from each entity with an interest in it or court authorization after notice and a hearing. Calling payroll or a supplier payment routine does not remove that restriction. A court can also impose conditions to protect an interest in estate property.
Thus, a pre-bankruptcy payment defense under § 547 and authority to operate after filing under § 363 should never be collapsed into one test.
Merger agreements: read the actual covenant
Between signing and Closing, a merger agreement may restrict changes to the target's operations. The aim and wording of that particular covenant matter: “ordinary course” is not a promise that every business decision preserves value.
For a concrete contractual illustration, the GoPro merger agreement dated September 1, 2026 defines ordinary course by reference to the relevant person's historical practices while taking account of circumstances at the relevant time (§ 1.2(c)(vii)). Its operating covenant includes specified exceptions, including required law, disclosed matters and written consent (§ 5.1). It also contains separately listed restrictions. This is an example of negotiated wording, not a rule for every acquisition.
Example: A target normally buys replacement equipment within an established budget. Replacing a failed machine may resemble its past practice. Buying an entirely new production line and changing the business model raises a different question. The reviewer should check the contract, spending restrictions, disclosure schedule and any required consent; commercial usefulness alone does not resolve compliance.
An unusual event does not automatically make an unusual response permissible. Conversely, an action outside routine practice may be permitted by a contractual exception or obtained consent. Review the whole relevant provision, not just the words “ordinary course.”
Commercial sales: buyer in ordinary course of business
Under the Uniform Commercial Code, buyer in ordinary course of business is a defined status for a purchaser of goods. It is not simply anyone making an everyday purchase, and it should not be substituted for the broader phrase “bona fide purchaser.” State enactments and the facts of the sale must be checked.
For example, Florida Statutes § 671.201(9) requires a good-faith purchase, without knowledge that the sale violates another person's rights, from a seller in the business of selling goods of that kind, other than a pawnbroker. The sale must accord with the seller's usual practices or customary practices in that kind of business. The definition also includes possession or a qualifying right to recover the goods and excludes specified transfers, including goods taken in satisfaction of a money debt.
Example: A customer purchasing a refrigerator from an appliance retailer's regular inventory may fit this category if the other conditions are met. Taking the retailer's equipment to satisfy an overdue loan is not equivalent to an ordinary retail purchase.
Florida Statutes § 679.320(1) and (5) illustrate the protection and its limits: a qualifying buyer can take free of a security interest created by the buyer's seller, even if it is perfected and the buyer knows it exists. Specified exceptions apply, including farm products bought from a farmer and a security interest in goods held by the secured party. Knowing that a security interest exists is different from knowing that the sale violates another person's rights. Ordinary-course status does not erase every possible claim to goods.
A practical checklist for evaluating a transaction
This checklist helps organize evidence; it is not a universal legal test. Start with the governing statute, court order or contractual clause.
Factor | Evidence to examine | Question to ask |
|---|---|---|
Frequency and history | Earlier transactions, invoices and records of practice | Is this a recurring activity or a new departure? |
Timing | Payment dates, seasonal patterns and delivery schedules | Does the timing differ from the relevant comparison period? |
Amount and scale | Budgets, transaction sizes and asset records | Is the amount comparable, or does it transform the business? |
Method and terms | Payment methods, credit terms and security arrangements | Have material terms changed? |
Approvals | Applicable covenant, court order, consent and disclosure schedule | Does a separate permission or restriction apply? |
Counterparties | Relationship history and the seller's type of business | Are the parties and transaction within the relevant rule? |
Industry practice | Reliable evidence of comparable businesses and transactions | Does the rule call for an industry comparison, and is it actually supported? |
Company past practice and industry custom are distinct evidence. A company's repeated conduct may be unusual in its industry; an industry-standard transaction may be new for that company. Which comparison matters depends on the applicable rule, and some rules provide alternatives.
Keep contemporaneous records explaining a material change. A retrospective label such as “business as usual” is less useful than the actual invoices, payment history, authority and relevant terms. Whether particular evidence is admissible or persuasive is a separate legal question.
Frequently asked questions
Is paying bills always in the ordinary course?
No. The debt's origin, payment history, terms, applicable statutory requirements and any separate restrictions matter. A familiar expense can still involve an unusual transfer or restricted cash collateral.
Does an outside-course transaction mean wrongdoing?
No. It may require a different approval process, contractual consent or court authorization. The classification and the consequences must be assessed separately.
Can industry custom replace company history?
Sometimes a governing rule offers an industry-based alternative, as § 547(c)(2) does after the ordinary-debt requirement is met. A contract focused on the target's past practice may operate differently. Do not import one context's alternative into another.
What should be checked before relying on the phrase?
Identify the jurisdiction and current legal provision, read the contract or court order if relevant, and compare the actual transaction with the appropriate evidence. This overview supplies examples, not a determination that a particular payment, sale or business decision qualifies.