The meetings industry will eventually recover from the global pandemic, but there are so many unknowns (Will your vendor go bankrupt? Will infections spike again?) that it pays to use a third party to hold payment deposits. Putting money in escrow creates trust because vendors know the money is available to pay them, and organizations can be confident that services will be delivered before payment is made to the supplier. Neither party can “hold the money hostage” and must negotiate fairly and in good faith.
Once the parties come to initial agreement on an event, deposits can be placed in an escrow trust account with companies such as Meeting Escrow. As a trustee of the fund, it will only release payment per the agreed-upon instructions from both parties.
For example, if the parties agree to postpone rather than cancel the event, they can instruct the escrow company to continue to hold the funds until the new program dates are set.
Three financial benefits of using an escrow trust account:
- The client’s meeting budget remains committed
- The budget is shielded from foreign exchange fluctuations (if being held in a different currency)
- The funds continue to earn interest (U.S. and Canadian dollar escrow accounts) until the post-poned program takes place and funds are released.
Advance deposit funds are securely held in an escrow account for the protection of the client and the supplier, and only released once the program is completed (except for subvendor deposits required by DMCs and other intermediaries).
Several “trigger conditions” can interrupt the release of the funds:
- There is a change in ownership or brand of the supplier (for example, a hotel that changes flags and is no longer appropriate for an incentive group)
- Bankruptcy/cessation of operations by the supplier or client
- Force majeure is invoked by the client or supplier
Is COVID-19 a reason for invoking force majeure?
This is a matter for meetings-industry legal experts to advise on (see also The Meeting Planner’s Risk-Management Resource). Should either party invoke force majeure based on their interpretation of their contract or agreement, they would notify the escrow company; this would pause the release of funds for a predetermined period, giving time for verification by both parties.
Supplier contract terms always apply
The most important thing to remember is that no matter whether funds are due to be deposited in escrow, already held in escrow, or already released (for subvendor advance deposits), the actual obligations of the client and supplier are still governed by the agreement that they have signed together.
This article was adapted with permission from guidance on www.MeetingEscrow.com