Payment Plans: Cover Your Costs and Use an Escrow Service

I read AbdulBasit Makrani’s thoughts about payment plans on NamePros, as well as the commentary added by others. I thought I would share a couple of additional pieces of advice that I think could be helpful based on my own experiences.

I have done somewhere around 10+/- deals using payment plans. For all of them except for one, I used either Escrow.com, DAN.com, or John Berryhill for the escrow / holding service. There are other companies that offer payment plan deal facilitation, but I have not used any other services. Based on my experiences, there are two things I would suggest – use a third party provider to facilitate the deal and do your best to ensure all of the fees are covered with the first payment.

Payment plans can be beneficial for several reasons. The buyer will be able to purchase a domain name that might not be affordable without a payment plan, and if they buyer fails to make payment in full, the seller keeps the payments and gets the domain name back. Aside from not getting paid in full upfront, I don’t see many drawbacks that can’t be worked out in the payment plan agreement.

I think it is important to ensure the purchase agreement is clear about payments, default, and usage during the term (among other points). The agreement should also work well with an escrow agreement. It is better, in my non-legal opinion, if there is one agreement that governs the entire deal but that is not always possible. For instance, when I transact using Escrow.com, they use an independent escrow holding agreement, and I use a separate purchase agreement that works in conjunction with the holding agreement.

I think purchase and escrow agreements are very important, so I would recommend using an experienced domain attorney for the drafting of the agreement(s). Having the purchase and escrow agreements drafted and revised can be somewhat costly though. On a $50,000 deal, the legal costs are relatively small, but if the payment term is 2 years with monthly payments, the first payment may not even cover the legal cost, let alone the escrow fees. If the buyer defaults after the first month, the seller may actually lose money on this deal! Make sure the escrow and legal costs are considered when agreeing to a payment plan deal.

It is helpful if the buyer agrees to pay the escrow and/or legal fees or even split those fees. When negotiating payment plan deals, I have found buyers don’t always have the financial flexibility to cover the fees, hence the desire to use a payment plan. It is something I always keep in mind when considering a payment plan.

I would also strongly recommend using a third party to hold the domain name in escrow. This is protective of the domain name for the buyer, and it can also make things a bit easier if the seller defaults. The escrow service serves as the impartial intermediary regarding default timelines, and the escrow service makes the determination about payment receipt. I think having a trusted third party facilitate a payment plan deal is helpful to both parties.

The one time I did not use an escrow service (on a smaller deal), I unwisely agreed to transfer the domain name before the final payment was made in full. The buyer did not pay the final payment and I lost out on approximately $1,000. That money would have been all profit, but instead, it left me with a valuable lesson.

Payment plans can be great for buyers and sellers when they are implemented correctly and go well. Sellers should take steps to ensure their domain name is protected until payment is made in full, and they should also ensure costs are covered within the first payment so they do not end up losing money if a payment plan does not get completed.