One of the biggest issues in a project is the payment conditions. The sale of complete bakery production lines concern large amounts of money and therefore larger risks. We searched for an alternative solution for the bank guarantee or Letter of Credit. One that better fits the needs for security of both seller and buyer. We have found it in an Escrow solution.
Bank guarantee and Letter of Credit
The selling party wants to have the money in its bank account before the start of dismantling, the buying party wants to be sure he gets what he paid for. Payment with a bank guarantee, or payment via Letter of Credit are options that are used often in international transactions. The disadvantage of a bank guarantee is that it puts a large burden on the working capital of the selling party. The Letter of Credit may be the most reliable, but also the most complex and expensive payment solution. There are a lot of rules and conditions that you must comply, the chance of mistakes is bit and the costs that are charged by the banks are high, especially in case of confirmed Letters of Credit.
The Escrow solution
Escrow is known mainly in the world of merges and acquisitions, but Escrow solutions are also used in the software branche, for example to secure licences. The Escrow agent acts as an intermediary for the financial handling. The total amount is ‘parked’ by the buying party on the blocked bank account of this independent third party, who makes sure that the money is available and that the payment conditions are met, based on the mutual conditions agreed by the parties.
How does Escrow work?
Our partner is an official financial institution, registered with the Dutch National Bank. The parties involved in the project will be screened and they make a contract with all parties involved. This way we are sure that we work with solvent companies. The buying party transfers the agreed amount to the blocked bank account of the third-party foundation of the Escrow agent. The Escrow agent confirms the receipt of the money to all parties involved.
Next. all payments will be done by the Escrow agent based on the agreements in the sales contract about when what amounts must be paid. For example, 50% of the amount is paid upon start of dismantling and the other 50% is paid on the last day of the project. The moment all agreements have been fulfilled and this has been confirmed to the Escrow agents by all parties, the payment will be arranged immediately.
Advantages for all parties:
• extensive screening of all parties involved
• short lines of communication, clear agreements
• no unexpected banking costs
Advantages for the seller:
• security of payment
• guarantee that the entire amount will be received when all conditions are fulfilled
• the money that is deposited by the buyer is separated from its equity, even in case of a possible bankruptcy
Advantages for the buyer:
• prevention of delivery fraud
• the money is not released to the seller until all conditions have been fulfilled
• the deposited amount will remain separate from a possible bankruptcy of the seller
A safe, simple and sure solution for the financial part of a project for all parties involved!