The buyer and seller may negotiate a cancellation fee to secure the performance
obligations in case one party decides
to cancel a trade. If one party cancels the trade, the other party gets
the gold amount specified in the Cancellation Provision.
A Cancellation Provision has the following characteristics:
- The gold amount is not available to the other party until the
performance obligations have been met, or when the trade is cancelled.
A Cancellation Provision is much safer than offering "down
payment" because the seller may walk away with the "down payment"
and never deliver the good or service.
- No possible dispute regarding the cancellation. The
Cancellation Provision is to provide a mechanism to
cancel a trade without having worry about a pending dispute from
the other party. It is the responsibility of both parties to pick
a cancellation fee high enough to offset the losses associated with a
Solving the problem of Non-Paying Bidders (NPD)
A non-paying bidder is an individual who had won an auction by placing
the winning bid, yet refuses to pay for that auction according to the
auction terms. To solve this problem, a seller may require a
Cancellation Provision for all bids. The cancellation provision may be
a fixed amount, such as one gram of gold, or a percentage, such as 5% of the
bidding amount. It is up to the seller to determine which amount is
acceptable to offset the inconvenience of dealing with a non-paying bidder,
such as restarting the auction or picking another auction winner.
During the bidding process, each bid is secured by transferring gold into
a Dispute Reserve to cover the
cancellation fee. Before starting a bidding war, the bidder
must plan ahead and have enough gold to secure a cancellation provision
fee for the highest bid he is willing to make. The seller has a great
incentive to set a small Cancellation Provision requirement, otherwise some
bidder may opt-out the bidding process because of insufficient gold to cover
their cancellation fee.
When the auction ends, the winning bidder has therefore two choices:
carry on the auction by transferring the whole amount to the seller in
Safetransit™, or cancel the bid
which automatically transfers the cancellation fee to the seller. If
the bidder cancels his bid, then the seller has the option to start a new
auction, or promote another bidder as the new auction winner. Once the
winning bidder transfers the auction bid in Safetransit, then all
other bids are automatically voided and all Cancellation Provisions are
fully refunded to their respective bidders.
At iGolder, the seller may waive the cancellation fee for a bidder.
For instance, a new bidder with insufficient gold may contact the seller
requesting permission to bid without providing any gold in the Cancellation
Provision. It is up to the seller to decide if he accepts bids from
Example of a Cancellation Provision on behalf of the Buyer
Alice hires Bob as a guest speaker for an important seminar. Alice
needs to make sure Bob will be there, because the audience registering for
this seminar wants see Bob, and if Bob is not there, she has to refund her
customers. Therefore, Alice uses the
Safetransit™ tool and places 400 grams of gold for Bob, however requires
Bob to place a Cancellation Provision of 100 grams. This way, if Bob
cannot make it to the seminar, Alice receives 100 grams of gold from Bob as
compensation. This way, Alice will be able to use the gold from Bob to
refund her customers, or perhaps find a replacement speaker while giving a
partial refund to her customers. On the other hand, if Alice cancels
the seminar, then Bob will receive his 400 grams of gold, unless specified
otherwise in the Safetransit Conditions.
For instance, the Safetransit Conditions may stipulate that Alice pays 200
grams if she cancels the seminar on a 30-day notice, otherwise she pays the
full price to Bob for any last minute cancellation.
Example of a Cancellation Provision on behalf of the Seller
Alice wants to buy a custom-made sailboat made by Bob. Bob requires
a 20% cancellation provision, so if Alice cancels her order before delivery,
then Bob gets 20% of the value of the sailboat, and can therefore try to
sell the boat
to another customer in hope to recover the remaining 80% of the value.
Notice the Cancellation Provision is different than a "Down Payment" because
Bob gets nothing until the boat is delivered to Alice. In the case of
a "Down Payment", Bob would immediately receive 20% of the value of the boat
before doing any work, therefore there is always a risk of having Bob taking
payment" and default on his obligations. The Cancellation Provision offers
protection to both the buyer and seller. Also, the Cancellation
Provision allows Alice (the buyer) to cancel her trade without affecting her
reputation, and Bob cannot file a
dispute about the cancellation because it was mutually agreed on the 20%
The Cancellation Provision may also be useful when the buyer
cancelling a trade. Alice wants to purchase gold by phone and agrees to
mail a personal check to Bob. Bob is willing to reserve the gold for
Alice, however requires Alice to provide a 2% cancellation provision.
This way, if Alice decides to cancel her trade, Bob will get a 2%
compensation to offset losses associated with an empty reservation.
There are many reasons why the trade may be cancelled. For instance,
Alice's check bounces for insufficient funds, or the check arrives after the
deadline of 10 business days, or simply because Alice never send the check
because she changed her mind. Maybe the gold price dropped
significantly before Alice wrote the check, or Alice discovered she could
purchase her gold somewhere else much cheaper. In any regards,
requesting a Cancellation Provision provides a great incentive to complete