Are you protecting your customers deposits?

Many businesses hold deposits, purchase product and hold the product for some time and then based on some set of specific circumstances, be it scheduling, or waiting for something else to occur, or whatever it may be, the item is delivered and the transaction is compete. This applies to many situations and should be evaluated if your business has such a relationship with your customers.

I talk about this because there are many businesses going out of business these days. Additionally, many businesses are being levied, attached, liened by the IRS or vendors, their banks, whomever has a financial commitment from the business owner.The issue then becomes what happens to the customers deposits and or product they paid for and have not yet received delivery for some technical reason.

This issue is more then just important and appropriate to do correctly it could prevent serious unanticipated issues from developing as it is absolutely possible that one may be guilty of various breaches of law should this situation develop as described, a creditor seizing customer deposits on product not yet delivered.

Here is what must be done in such situations to protect both yourself, your customer, their deposits and the product they have purchased and you are holding.

1. When you receive the deposit, do not co-mingle it into the general operating cash fund. Segregate it into a specific customer deposit account held separately and not used for anything other then purchasing the product it was intended for. This begins to establish the rights of the customer beyond those of the business, or the bank or the IRS or whomever may be making claims against your general cash fund or inventory.

2. Once the product is ordered and arrives on sight, intending to be held for the customer until the specific time it is appropriate to deliver, install or whatever before the transaction is complete, the item should be segregated from the general inventory area, and held in the Customer Owned Product area clearly labeled as such with appropriate signage.

3. The specific box or item must also be specifically labeled with the specific customers name indicating ‘owned by’ customer Joe Brown.

This being done, if you are defaulting on a loan or the IRS and your account gets levied or liened, or attached, or the inventory is seized, or you go out of business and close your doors and the creditors sweep in looking for anything to liquidate to cover there defaulted receivables, or note payment, or tax payment, the customers product will be protected as you have done everything appropriate to isolate and identify it as customer product and thus removing it from your general account were it would be susceptible to being absorbed by the creditors.

This plan will afford you the best possible defense protecting your customers deposits or product from being considered yours and thus available for seizure from various creditors. This is hugely important as it protects you, your customers and the product from inappropriate seizure and liquidation and thus eliminates a dangerous and costly defense against your customers claiming theft or larceny of some sort.

Furniture stores, contractors of all sorts are all experiencing deadly downturns in their business and may face liquidation while holding customer deposits or product. Pay attention, it is one thing to lose your money its another thing to lose someone else’s money or product.

Be careful, be prudent, yes it is more work but should be done, and do not use customers money for general purposes and failing to purchase their items or holding their cash separately, waiting for cash flow to catch up with your needs.