June 27, 2016 How Escrow engenders trust: An essential ingredient post-Brexit
There is much that is still unknown following the UK’s decision to leave the EU: how long the process will take; what the relationship between the UK and the EU will finally look like; and how Brexit will impact the UK, the EU and the rest of the World. In fact, it could be said that the one thing that is known, is that there is much that is unknown.
With so much uncertainty, it can be particularly difficult to strike a commercial deal; an area where trust is essential. It is not inherently a lack of trust in the individuals on the other side of a transaction (who are likely honourable and good business people), but a lack of trust that the other side will be in a position to honour their commitments. For example, we have recently had clients particularly concerned with the insolvency risk posed by a counter-party, especially if they are involved in the Real Estate industry. This is likely to increase as the full impact of Brexit becomes clear.
Escrow creating certainty
Escrow is a tool that helps to overcome a lack of confidence between the parties. For example, with a performance escrow account, a supplier will put a certain sum into an escrow account to provide a customer with confidence that the supplier will deliver and to mitigate the impact if they don’t.
Escrow improving performance
Escrow is often seen as a negative tool to deal with a weaker party or when other tools have failed to work. However, having assets secure in Escrow can also improve the performance of a supplier or counter party. The added focus of having funds held in Escrow often gives a supplier an extra focus to deliver on the terms of a contract and it can be used as a very positive tool.
Escrow creating trust
As a supplier, offering to place funds in Escrow to support your obligations can also help to create trust with a customer. It can be a sign of strength and confidence in your ability to deliver if you are willing to back up your obligations with an Escrow. It can give you a competitive advantage in a pitch process or help level the playing field against a larger and more established competitor.
Escrow post Brexit
At the time of writing, it has only been a few days since Brexit, but we have already seen an increase in the number of enquiries for performance escrows; with clients investigating ways to bridge the uncertainty caused by Brexit.
There are a huge variety of ways that an Escrow account can be utilised and our experts are always happy to discuss what they have seen from other deals and the developing market practice, so please contact us if you would like to discuss your requirements.