A Clever Way to Reduce Sales Risk in Europe
Sales will always include risk, but with the right tools and legal advice, there are ways to reduce that risk. If you’re selling to a country in the EU, Retentions of Title (ROTs) can help!
Retentions of Title:
A Retention of Title in its most basic form is a way for a seller to retain ownership of their goods until payment terms have been met. The primary purpose is to protect the seller in case of non-payment. There are different types, and the process can be complex. If you have legal expertise in the country of your buyer however, you can reduce sales risk.
In the USA, all these processes are limited by law and vary by state. In some states, any ROT action is subject to specific consumer protection laws, and most others require any security interest to be registered.
In Europe, it is very much the same. Even though certain laws are recognized across the EU, every country treats ROTs a little different. Making sure that you are adhering to local formalities and jumping through the right hoops is vital if you want to make sure an ROT will be recognized when or if the time comes.
An ROT must often be included in a subclause of a contract or general terms and conditions. In Italy, for example, it must be agreed to beforehand and referred to in all relevant invoices. In Poland, there is a specific process and any ROT must be registered.
Which forms are legal in the country of your buyer and which would best fit your situation? If you’re having issues with buyer risk or wish to include ROTs in your next contract, we can help! email us at firstname.lastname@example.org or call +1 347-862-9438.
Forms of ROTs and Their Uses
Basic: Here a seller retains ownership of goods until payment is made. Aside from local government stated limitations is the common ‘Enrichment Ban’, which states that you can only withhold a title until the debt listed under the ROT is paid.
Extended: Can follow goods once they’re resold and depending on the agreement, allows the seller a say on the selling price. Sometimes this is used to ensure payment if a 3rd party buyer is paying in installments.
Enlarged: Retained title on a product that will be transformed or incorporated into another product. This one is tricky: it must be enforceable, listed in contract form, and must include a method of inventory verification.
All-Monies: Title will belong to the seller for as long as the buyer still owes them money. It depends on the agreement, but in rare cases, this can even include unrelated invoices and associated costs.
Keep in Mind:
- This tool requires strict formality adherence and a lot of background research – often including legal assistance.
- The ability to enforce the ROT depends both on the parties involved and on where the goods end up.
- Not all EU countries recognize enlarged or extended ROTs.
- Used correctly, an ROT is a strong, effective legal tool for reducing credit and sales risk.