What is retention of title (RoT)?
Retention of Title (RoT) is a clause in a commercial contract that allows the seller to retain ownership of the delivered goods until the buyer has paid in full. This means that even if the buyer has received the goods, they do not formally become the owner until the full amount has been paid. RoT is used as a form of security in B2B transactions, especially when the seller offers trade credit and wants to minimize the risk of the recipient becoming insolvent. If the buyer fails to make payment by the agreed date, the seller has the right to recover the goods or claim their value in bankruptcy proceedings.
Frequently asked questions (FAQ)
1. How does retention of title work in practice?
In practice, the RoT mechanism means that the seller delivers the goods to the buyer on deferred payment terms, and the contract includes a clause stating that the goods remain the seller’s property until full payment is made. The buyer can use the goods, but cannot legally sell, process or pawn them until the payment has been made. If the buyer does not pay within the agreed period, the seller has the right to repossess the goods or claim their value in court.
2. What types of RoT clauses are there?
There are several types of RoT clauses. Basic RoT means that the ownership of the goods is transferred to the buyer only after full payment. Extended RoT also includes goods that have been processed or combined with other products. There is also RoT with the authorization to sell, which allows the buyer to sell the goods, but obliges him to immediately transfer the payment to the seller. A global RoT refers not only to a specific transaction but also to all future deliveries between the parties.
3. What are the advantages of a retention of title?
For the seller, a RoT is an effective safeguard against the risk of buyer insolvency, enabling the seller to recover the goods in the event of non-payment. Furthermore, it gives the seller a stronger negotiating position if the buyer is in financial difficulty. For the buyer, RoT means the possibility of receiving the goods before full payment, which increases flexibility in financial management.
4. What are the risks associated with RoT?
Despite its many advantages, RoT also involves certain risks. The effectiveness of this clause depends on the laws of the respective country, as it is not recognized everywhere. In addition, if the goods have already been sold or processed, it may be impossible to physically repossess them. There is also the risk that the buyer will intentionally delay payment, knowing that he still has the right to use the goods.
5. In which industries is RoT used?
RoT is widely used in various sectors of the economy. In industrial production, it often secures the supply of machinery, components and raw materials. In retail and wholesale, it is used for the sale of electronics, equipment and vehicles. In the construction sector, RoT is used for the supply of building materials on credit.
Retention of title (RoT) is an effective seller protection mechanism that ensures greater control over receivables and minimizes the risk of financial loss. However, its effectiveness depends on proper legal regulation and precise contractual stipulation, making it a key element of secure commercial transactions.
