Texas State Auction Laws requires Auctioneers to maintain an Escrow Account. Well, there is an exception to this rule, and I'll discuss that, as well.
What is an Escrow Account?
An Escrow Account is a separate and distinct bank account that is used to hold "other peoples" money. This would include any money that is taken in from an auction sale for a client, as the auctioneer waits for all funds to clear the bank, whether it's cash, checks, credit card funds, etc.
Why does an Auctioneer have to have an Escrow Account?
By law, the auctioneer can not "commingle" funds from clients and their own business operating funds. So, they may have their own business bank account, from which they pay their own bills and a separate Escrow Account for monies held for their clients as a result of the auction sales. This prevents the auctioneer from making the mistake of using the clients money to pay his bills and insures that the money is available, when it comes time to pay the client.
How it's supposed to work...
The auctioneer may hold an auction sale for one or more clients. All of the funds generated from the sales are deposited into the Escrow account. By Texas Law, these funds must be deposited into the Escrow account within 72 hours of the sale. After all monies clear the bank (and the auctioneer is satisfied that he's not going to get stuck with a bounced check or something of that nature), the auctioneer then sends the client a check for their goods, minus commissions and/or other expenses that may be due from the client. The auctioneer then makes a check out to his "business" for the commissions and expenses owed for their services and deposits that in his/her Business account.
If everything is done properly, then you wouldn't have this problem:
** High profile auctioneers accused of cheating clients **
How long does an Auctioneer have to pay the client?
By Texas Law, unless otherwise specified in a written contract, the auctioneer has to pay the client within 15 banking days of the auction.
Does an Auctioneer have to have an Escrow account?
Yes... UNLESS they pay the client immediately after the sale or the written contract stipulates other terms, such as sight drafts. So, if the auctioneer accepts checks and credit cards, he/she would normally be required to have an Escrow account, unless the auctioneer has plenty of cash on hand and can give the seller a check on the spot, and absorb any bad checks or credit card charge-backs, until such matters can be resolved. There are a LOT of reasons why this is a BAD IDEA for any auctioneer to even consider. However, I'll leave that as another topic for a future discussion.
Jim Ford, Lic. 12478