# What makes sure everyone in a deal gets paid? A written agreement on shares, a neutral holder, a guarantee or a payment router: each covers a different risk of not being paid. Here is which covers what. --- Seven kinds of mechanism make sure everyone in a deal gets paid: a written agreement on shares, a neutral holder such as an escrow service, a settlement agent or an attorney's client account, a paying agent, a joint bank account, a payment processor's split feature, a guarantee or bond, and an onchain payment router. What separates them is which of three risks each one covers: the client does not pay, the first recipient does not pass the shares on, or the shares were never agreed in writing. No single mechanism covers all three, which is why deals that matter combine two of them. If you are the party who does not receive the client's payment, the question to ask is not "which tool is safest" but "which of the three risks is mine". The rules that govern the regulated mechanisms (who may hold other people's money, how a bond claim works, what a bank account mandate allows) vary by country and by state, so treat what follows as a description of how each family works, not as legal advice for your deal.
$125,000owed to three parties and sitting in the lead's own account when a $250,000 payment is passed on by hand
$12,500missing across those three parties if the lead passes the shares on with a 10% deduction nobody agreed
1 or 5payments needed to pay four parties: one through a router, five through a neutral holder

Worked example used throughout: a $250,000 deal, four parties at 50%, 25%, 15% and 10%. Illustrative figures.

## Where is the risk that you will not be paid? The risk of not being paid in a multi-party deal sits in one of three places: the client does not pay, the first recipient does not pass the shares on (or passes them late or reduced), or the shares were never agreed in writing. Each place calls for a different mechanism, and a mechanism that closes one leaves the other two open. The first risk is upstream of everyone. The client receives the goods, the work or the asset and pays nothing, pays part, or pays and then reverses the payment. The second risk is between the parties themselves. The client pays the full amount to one of them, usually the lead, the broker of record or the main contractor, and the others wait. That person may pay on time, pay next month, pay after deducting costs nobody discussed, or become insolvent with your share mixed into their own funds. The third risk is the quietest. The shares exist as an understanding from a phone call: "we said a quarter, didn't we?" When the payment arrives, two parties remember two different numbers, or agree on the percentage but not on what it is a percentage of. No holding or routing mechanism can fix this, because every one of them executes instructions, and here there are none to execute. ## Which mechanism covers which of the three risks? A neutral holder is the only family that covers the client-payment risk by holding money against a condition; a neutral holder, a paying agent and an onchain payment router remove the pass-on risk; and only a signed written agreement on shares covers the third. The table gives each family against the three risks, in the order of how much it requires to set up. | Mechanism | Client does not pay | First recipient does not pass on | Shares never agreed | | --- | --- | --- | --- | | Written agreement on shares | No, but gives each party a claim | No, but gives each party a claim | Yes | | Joint bank account | No | Only if every holder must sign | No | | Payment processor's split feature | No; a card payment can also be disputed later | Yes, once the split is configured | Only as a configuration, not a contract | | Onchain payment router | No; nothing moves until the client pays | Yes; no first recipient exists | Yes, if each recipient signs their share | | Neutral holder (escrow service, settlement agent, attorney's client account) | Yes, when money is deposited before delivery | Yes; the holder pays each party directly | Only if the instructions list every party | | Paying agent (larger deals) | No, unless combined with an escrow | Yes; the agent pays each party directly | Yes, through the paying agent agreement | | Guarantee or bond | Yes, if it guarantees the client | Yes, if it guarantees the first recipient | No | The written agreement is the only row that says "yes" in the last column without a condition, and "no" in the other two: it is necessary everywhere and sufficient nowhere. ## What does a written agreement on shares do, and what does it leave open? A written agreement on shares fixes who is owed what and on what base, and gives each party a claim that can be enforced, but it moves no money and stops nobody from paying late. It is the foundation every other mechanism is built on, not a substitute for them. What it does well is remove the third risk completely and cheaply. One page signed by all four parties, stating the percentages, the amount they apply to and the moment each share is due, ends every later argument about what was said. Where it stops is enforcement. If the first recipient holds your share and does not send it, the agreement lets you send a demand and, eventually, go to court or arbitration. That costs time and money, it is slow across borders, and it is worth little against a party who has become insolvent. It suits every deal, and it is enough by itself only where the amounts are small relative to the relationship. ## What does a neutral holder do that nothing else does? A neutral holder receives the client's money, holds it while a condition is met, then pays each party under written instructions; it is the only family in this comparison that can hold money against a condition. An escrow service, a settlement agent and an attorney's client account are three forms of the same function, and a paying agent is its counterpart for larger deals. That function matters when delivery and payment cannot happen in the same instant. A property needs a title search and a registration; a business sale needs consents; a domain name or an aircraft needs a transfer that takes days. Somebody has to hold the price while those things happen, and nothing else on the list does that job. For the party waiting on a share, the neutral holder also removes the pass-on risk, on one condition: you are named in the disbursement instructions. A settlement agent pays the people listed on the settlement statement. An escrow service pays the people its instructions name. If the instructions say "pay the full commission to the lead broker", the holder will do exactly that, and you are back to depending on the lead. The holder is usually regulated, and that is part of what you are paying for. For attorneys in the United States, the American Bar Association's Model Rule 1.15 requires a lawyer to hold the property of clients and third persons separately from the lawyer's own, to keep complete records of it, to deliver promptly the funds a person is entitled to receive, and, where two or more persons claim the same funds, to keep the disputed portion separate until the dispute is resolved. Each state adopts its own version, and escrow and settlement businesses have their own licensing regimes that differ by state and by country. Where it stops: it needs an account opened, identity checks on the parties, instructions drafted and signed, and a fee. The money sits with the holder for the length of the condition, which may be days or months. Those are the cost of the holding function, not a flaw in it. A paying agent does the disbursement half of this job in larger transactions. In a company sale with many shareholders, or a securities issue with many holders, a bank or trust company is appointed under a paying agent agreement to receive the money and pay each holder their allocation against the required documents. It suits deals with dozens or hundreds of payees and a formal closing. ## Do a joint bank account or a processor's split feature protect the parties? A joint bank account protects the parties only if its mandate requires every holder to sign each payment, and a payment processor's split feature protects them only once every recipient has an account with that processor and the split is configured before the client pays. Both remove the single account controlled by one party; neither secures the client's payment. A joint account looks like the obvious answer: the client pays into an account that belongs to all four parties. The question is the signing rule in the account mandate. If any one holder can act alone, each party can move the entire balance, so the exposure of each party is to all the others and for the full amount, which is worse than the arrangement it replaced. If all holders must sign, nobody can take the money alone, but one party who refuses to sign blocks everyone, and the bank will not arbitrate. A processor's split feature is built for platforms and marketplaces: the client pays once, by card or bank debit, and the processor divides the payment between connected accounts according to rules set in advance. For a one-off deal it has three limits. Every recipient must be onboarded and verified by the same processor. Money reaches each party on the processor's payout schedule, not at the moment the client pays. And a card payment can be disputed by the cardholder after the fact; whose balance carries a reversed payment depends on the processor's terms and on how the split was set up. It suits recurring, moderate amounts between parties already on the same platform. ## What does a guarantee or a bond cover? A guarantee or a bond covers the failure of one named party to pay: a third party, usually a bank, a surety or a parent company, promises to pay in that party's place, up to a stated amount and under stated conditions. It moves no money on the day of the deal and says nothing about what the shares are. The useful question is whom it guarantees. A guarantee of the client (a bank guarantee, a standby letter of credit, a parent company guarantee) covers the first risk: if the client does not pay, the guarantor does. A guarantee of the first recipient covers the second. Public construction is the classic case. Under the Miller Act in the United States, a contractor awarded a federal construction contract of more than $100,000 must furnish a payment bond that protects the persons supplying labor and material, and the General Services Administration's guidance explains that this reaches first-tier subcontractors and suppliers and, with written notice within 90 days, second-tier ones. Where it stops: a guarantee pays after a default, on a claim, with documents and deadlines. Under the Miller Act, a civil action must be brought no later than one year after the last labor was performed or material supplied. Miss a notice period and the cover is gone. The guarantee is capped at its stated amount, it costs a premium or a bank fee, and the guarantor will usually want security from the party it guarantees. It suits large contracts where a single default would be serious and the parties have the standing to obtain one. ## What does an onchain payment router do? An onchain payment router takes one payment from the client and pays every party their share in the same transaction, to destinations fixed beforehand, without holding the money at any point. It removes the first recipient altogether, so the pass-on risk has nowhere to sit. Shaka is one such router. Each party's share is set as a percentage of the deal, and each recipient can sign their share before the client pays, which costs the parties nothing; the signed shares double as the written agreement on the split. The client pays once, through a payment link. Because the destinations are fixed and signed before the payment, the money cannot be redirected at the last minute. Every party is paid at the same moment, the payment is final, and each party can see that the others were paid, since the record of who was paid what stays available onchain and can be kept for the file. A deal has at most 20 recipients. Where it does not fit matters as much. A router is not an escrow service: it holds nothing, so it cannot keep the price back while a title is registered or a transfer completes. If your deal needs money held against a condition, you need a neutral holder, and the router is the wrong family. It does not cover the client-payment risk either: until the client pays, nobody has been paid, although nobody is ahead of anyone else. It requires a client willing to pay onchain and recipients able to receive that way. And shares expressed as percentages of the deal do not describe every arrangement; a waterfall with fixed amounts, thresholds and catch-ups needs a different instrument. ## Who holds the money, and what can each party verify? Under a hand-passed payment one party holds everything; under a neutral holder or paying agent a regulated third party holds it for the length of the condition; under a router nobody holds it. What each party can verify follows from that: the fewer accounts the money passes through, the less there is to take on trust. | Mechanism | Who holds the money, and how long | When each party is paid | What each party can verify | | --- | --- | --- | --- | | Written agreement only | The first recipient, until they pay on | When the first recipient sends it | Their own receipt, nothing else | | Joint bank account | The bank, in the holders' joint names, until payments are signed | When the required signatures are given | The full statement, if each holder has access | | Processor's split feature | The processor, until its payout date | On the processor's payout schedule | Their own payout; the whole split only if the platform shows it | | Onchain payment router | Nobody | At the same moment, when the client pays | Every share paid, in the onchain record | | Neutral holder | The holder, until the condition is met | At closing or release, each by separate payment | The settlement statement or the signed instructions | | Paying agent | The agent, until each holder delivers its documents | As each holder's documents are accepted | Their own allocation under the agreement | | Guarantee or bond | The guarantor pays only on a valid claim | After default, claim and review | The text of the guarantee and its expiry | A party who can see only their own receipt cannot tell whether the client paid in full, or when. If your mechanism leaves you in that position, write a right to see the proof of the client's payment into the agreement. ## What does each mechanism mean on a $250,000 deal with four parties? On a $250,000 deal split 50%, 25%, 15% and 10%, the mechanism decides whether three parties are exposed to the fourth for $125,000, whether all four rely on a neutral holder for $250,000, or whether nobody is exposed to anybody once the client has paid. The assumptions are illustrative: a lead who would otherwise collect the payment takes 50% ($125,000), and three other parties, B, C and D, take 25% ($62,500), 15% ($37,500) and 10% ($25,000). The four shares add up to $250,000. | Mechanism | Payments needed | Who is exposed to whom, and for how much | For how long | | --- | --- | --- | --- | | Written agreement, lead passes on | 4: one in, three out | B, C and D to the lead, for $125,000 in total | Until the lead pays | | Joint account, any holder signs | 5: one in, four out | Each party to the three others, for up to $250,000 | Until the balance is paid out | | Joint account, all holders sign | 5: one in, four out | Each party to a refusal to sign, on its own share | Until the last signature | | Processor's split feature | 1 in, 4 payouts | Each party to the processor and to a disputed payment, on its own share | Until payout; longer if the client disputes | | Onchain payment router | 1 | Nobody, once the client has paid | No holding period | | Neutral holder | 5: one in, four out | All four to the holder, for $250,000, under its licence and instructions | The length of the condition | | Bond on the lead, with hand pass-on | 4, plus a claim on default | B, C and D to the lead for $125,000, backed up to the bond amount | Until paid, or until the claim is settled | The neutral-holder row shows the largest figure and that is not a mark against it: the $250,000 is with a party whose business and licence consist of holding it, under instructions all four signed, and in exchange the client's money is secured before delivery. No other row offers that. The bond row depends on its cap. A bond of $125,000 covers the three onward shares in full; a bond of $100,000 leaves $25,000 uncovered if the lead pays nothing. The first row deserves a closer look, because a reduced payment is harder to contest than no payment. Suppose the lead passes the shares on after deducting 10% for "costs" that the agreement never mentioned. | Party | Agreed share | Received after a 10% deduction | Short by | | --- | --- | --- | --- | | B (25%) | $62,500 | $56,250 | $6,250 | | C (15%) | $37,500 | $33,750 | $3,750 | | D (10%) | $25,000 | $22,500 | $2,500 | | **Total** | **$125,000** | **$112,500** | **$12,500** | D is short by $2,500, an amount rarely worth a lawsuit. A mechanism that pays each party directly from the client's money makes the deduction impossible rather than merely recoverable. ## What should be agreed in writing before the client pays? Before the client pays, the parties should have signed one document that states each share, the base it applies to, who receives the client's money, when each share is due and what happens if the amount changes. Everything below fits on a page, and every mechanism in this comparison needs it as its input. - **The parties and their shares.** Each party named in full, each share as a percentage or a fixed amount, and a line confirming the shares total 100% of what is being divided. - **The base.** A percentage of what: the gross amount the client pays, or the amount after tax, after third-party costs, after the holder's fee. State the worked figures for the expected amount, as in "25% of $250,000, being $62,500". - **Costs and deductions.** Which costs come off the top before the split, with a cap, and a sentence saying no other deduction may be made from any share. - **Who receives the client's payment.** The first recipient, the neutral holder, the joint account or the router, named, with the rule that the client is told to pay nowhere else. - **When each share is due.** A number of business days after the client's funds are received, or "at the same time as every other share". Avoid "promptly". - **Destination details.** The account or address each share is paid to, fixed in the document, with a rule for changing it: in writing, signed, and confirmed by a call to a known number. - **If the client pays less, late or in instalments.** Whether each instalment is split in the same proportions, and who bears a shortfall. - **If the payment is reversed or refunded.** Whether each party returns their share in proportion, and within how long. - **Proof.** The right of every party to see evidence of the client's payment and of each share paid. - **Disputes.** The governing law, the forum, and what happens to a disputed share in the meantime while undisputed shares are still paid. "A quarter of the fee" means $62,500 to the party who assumed the gross and something lower to the party who assumed the net, and both are being honest. ## How do you choose a mechanism for your situation? The choice depends on which of the three risks is real in your deal, on whether money must be held against a condition, and on how the client is able to pay. Start from the risk, not from the tool. - **Delivery and payment cannot happen at the same instant** (a title to register, a transfer to complete, an inspection to pass): use a neutral holder, and make sure every party is a named payee in its instructions. Nothing else holds money against a condition. - **You doubt the client will pay at all, and nothing needs holding:** ask for a deposit with a neutral holder before work starts, or a guarantee of the client. A split mechanism will not help; there is nothing to split yet. - **You trust the client but depend on one party to pass your share on:** remove the first recipient. A neutral holder, a paying agent or an onchain payment router each pay every party directly; the choice between them turns on whether a condition must be met first and on how the client can pay. - **The client pays by card or bank debit, the amounts are moderate and the deal repeats:** a processor's split feature fits, provided every recipient is onboarded and you have read the terms on disputed payments. - **The deal is large, with many payees and a formal closing:** a paying agent, usually alongside an escrow for any amount held back. - **The contract is large and one default would be serious:** add a guarantee or bond behind whichever payment mechanism you use, and diary its notice and claim deadlines the day it is issued. - **The parties run a continuing venture together:** a joint account requiring all holders to sign can work, with a written rule for breaking a deadlock. - **Nothing is in writing yet:** stop there first. Sign the page of shares before choosing anything else, because every other mechanism only executes what that page says. In practice the answer is usually a pair: the written agreement, plus one mechanism matched to the risk that worries you most.