Payment of Deposits

Payment of deposits has become a normal part of everyday business, being commonplace in transactions from house purchases to building work.

But should you be paying a deposit?

There is always a risk involved when paying money and receiving nothing tangible in return. What happens, for example, if a company or natural person becomes insolvent before completing the work you paid the deposit for? What if a property vendor has spent your deposit, but cannot complete settlement on the day because they owe their bank too much? Typically, you will then find yourself as an unsecured creditor and it is quite possible that you will not recover all of your money.

While loss of a deposit rarely happens, you should always consider the risk when paying a deposit. For example, is the other party solvent? Always seek to pay the smallest amount possible and consider requiring security to be granted in return. In property transactions you should consider requiring a deposit to be held in trust as stakeholder, until risks have been assessed and minimised.

If you have any concerns about a deposit that you are being asked to pay, then give us a call and talk the risks through with us first.