Protecting Your Investment (3)

You have already carried out a number of enquiries that will have given you clues. Follow these further steps of due diligence.

• Find out the actual company name of the organisation as opposed to the trading name. It might be the same of course or it might be a family business, a family trust or a limited liability company. If it’s a trust or limited liability company your chances of recovering money in the event of cessation of trading will be slim to nil.
• If it is a limited liability company, make enquiries with New Zealand Companies Office. You can access certain information for free, such as: company number, registered address, names and addresses of directors and shareholders, names of banned directors and managers. For a small fee you can dig deeper.
• You can access a company credit check for a small fee from one of the credit checking organisations.
• You can also make credit checks on key individuals. If it’s owned by an individual or partnership (such as a married couple) you can make individual credit checks for a small fee.

Getting a credit report on a company or an individual is very easy and does not cost much. Information about where to get one from is available on the internet, just type ‘credit check’ into your browser and take your pick of providers.

After all, whenever you ask for credit, the lender always checks your credit file.

Escrow

Another way of protecting your deposit would be to put it into an Escrow account to be paid as a stage payment at an agreed time, perhaps when the kitchen is actually started. By this means a third party, such an Escrow company or your solicitor, holds your deposit until you agree to release it. The way it works is like this:

1. Buyer and Seller Agree to Terms
Both parties agree to the terms of the transaction, which includes a description of the merchandise, sale price and payment terms.

2. Buyer Deposits Money-
The Buyer deposits the agreed amount into the Escrow account.

3. Seller Meets the Payment Terms (e.g. starts the kitchen). The Seller asks the deposit holder for payment. The deposit holder informs the Buyer and waits for instructions.

4. Buyer Authorises Payment of the Deposit.
The Buyer has a set number of days to check that the agreed terms have been met with an option to delay payment if they have not.

5.  The Escrow Account Holder Pays the Seller
The holder of the deposit pays the seller the agreed amount and that part of the transaction is complete.

The holder of the deposit pays the seller the agreed amount and that part of the transaction is complete.

The whole transaction could be handled like this from deposit through stage payment/s to final payment only after you are completely satisfied with your new kitchen.

To find an escrow specialist talk to your solicitor or you could try entering the word escrow into the Google on the Internet for a list of NZ specialists.

Negotiate a smaller deposit

Kitchen suppliers typically ask for a 50% deposit at time of signing the contract. They might not even start on your kitchen for several weeks. All you have done is to secure your place in the queue. Your money sits with them to do with, as they will. Maybe 10% would be a more realistic figure to show good faith with no more until they have something to show. 10% plus stage payments during the manufacturing process and another 10% retention at the end would be more than reasonable.

Remember that any kitchen maker that has accounts with their suppliers will have credit of up to six weeks from them due to the 20^th of the month payments system. They should not need your cash in order to order to buy the materials for your kitchen. If they really need your cash up front then the chances are that their cash-flow situation is such that your deposit is needed to pay bills that are already sitting in the creditors ledger.

Always be very careful about handing over a deposit. Be especially careful of handing over a deposit during an economic downturn. For obvious reasons this is a time when companies are under more pressure and more at risk from cash-flow difficulties.

Apart from anything else, your money can be earning you interest in your own account.

How much should you pay?