To Be Bonded or Not to Be?

Leanna Kalka · #1 (**permalink**) 03-21-2008

This may sound like a stupid question, but I realize I'm not sure what it is. I thought I did!!!

I was asked the other day if I was bonded. I gave a pretty bad answer actually that probably showed that I really didn't know what being bonded meant. To me, it had to do with trust and honor, but I'm afraid that is incorrect.

Could someone help me out with this? What it is and if my business might benefit from being bonded.

Office Goddess · #2 (**permalink**) 03-21-2008

What type of services do you provide? I do primarily bookkeeping and am bonded with a "service bond" which is basically a guarantee that if I steal from my clients that the insurance will reimburse the theft.

Leanna Kalka · #3 (**permalink**) 03-21-2008

I haven't got a specific industry that I specialize in, but could be possible that I might do some work for insurance companies and who knows who else. I do some payables/receivables and payroll, but haven't got the whole over the internet part of it down pat yet, so only am doing it locally when asked. But otherwise am doing transcription, spreadsheets, word processing, proposals, presentations and such.

What kinds of costs go with getting bonded and who would I go through to do it?

kathiemt · #4 (**permalink**) 03-21-2008

Leanna, you probably need to go have a chat with your Accountant to find out about the things that are relevant to you. Here in Australia we don't even use the term 'bonded' so I had no idea what it meant the first few times I saw it mentioned. But apparently it has something to do with the insurance cover you have. And I definitely recommend you have insurance to cover your business, your business equipment and yourself in the course of running your business. Your accountant will be able to put you on the right track because he or she should have a good idea of what your business is about and what you need to have.

Kerans VA · #5 (**permalink**) 03-22-2008

Being bonded means that a bonding company has secured money that is available to the consumer in the event they file a claim against the company.

Cleaning companies often bond their employees, let’s say that you hire a cleaning company and they end up stealing your grandmother's pearl earrings. Well, you would file a claim against the company and, after an investigation, would be paid out by this bond.

http://www.isquare.com/faq.cfm#bond

A: BONDS AND BONDING.

From time to time a small business, especially those performing contracting services will be asked to bond his work in advance. In some states certain types of contractors are required to be bonded. What is a bond, how do you get one, and what does it do?

Simply put a bond (sometimes referred to as a surety bond) is a third party obligation promising to pay if a vendor does not fulfill its valid obligations under a contract. There are various types of bonds such as LICENSE, PERFORMANCE, BID, INDEMNITY & PAYMENT. A bond is a financial guarantee that you will honor a business contract. Frequently a customer will require that your company be bonded.

* A PERFORMANCE bond is a guarantee that you will perform work in accordance with the terms of a contract.
* A BID bond is a guarantee you will perform work if the bid is won by you.
* A INDEMNITY bond promises to reimburse loss incurred if you fail to perform or if you fail to pay other vendors in the performance of the contact.
* A LICENSE bond is required by some states for certain businesses. In some cases you pay the state directly rather than obtaining a bond.
* A PAYMENT bond promises you will pay all subcontractors and material providers utilized in the performance of a contract.

A bond is NOT an insurance policy. This is important to remember. A bond provides assurance that the contracted work will be satisfactorily completed only. For example your bond will not pay for property damage or personal injury resulting from your work. For this you need conventional insurance coverage.

Your local yellow pages will list companies that provide bonding services under "surety bonds." Also, check with Bond-By-Fax, Commercial Surety Department at 1 (800) 395 CBIC. Generally speaking, bonding companies will only provide bond coverage in an amount that you can cover with existing liquid assets.

Before you purchase a bond from any bonding company, have the bond documentation reviewed by your attorney and ensure that you understand exactly what the bond can and cannot protect against - for you and your customer.

Leanna, I suggest you start by speaking with your insurance provider. They will be able to advise you whether the work you do even qualifies for coverage under any kind of bond policy. Another consideration is whether you are operating as a sole proprietorship or as a corporation. I doubt very much an accountant would have the slightest idea of whether you would be covered and your insurer may very well direct you to an attorney outright. I would suspect that you do not need bond coverage, I know I do not and the client that asked may well have confused 'insured' with 'bonded'. At the very least, you will have an informed answer to that question should anyone ever ask it of you again!

p.s. I don't think there are ever any stupid questions!

Hope that helps!

kathiemt · #6 (**permalink**) 03-22-2008

Thank you Kate for the explanation. As mentioned we don't use that term here in Australia and I could only go by what I'd seen written elsewhere before. But it is important for Leanna to go see a professional who can give her the correct advice - we can only talk about our various experiences here but when it comes to legalities, insurances and accounting services, it's best to see a professional who can point you in the right direction according to the laws and legislations in your particular region.

Kerans VA · #7 (**permalink**) 03-22-2008

Kathie is absolutely right. The person that may know the correct answer to your question could very well be an attorney and I always recommend directing any legal-based questions to the professionals. An accountant or your insurance provider can probably start by pointing you in the right direction.

Office Goddess · #8 (**permalink**) 03-23-2008

I would contact an industry-specific insurance agency as there are literally hundreds of types of bonds and a general insurance agency may not know what kind you need.

As I stated before, I provide bookkeeping services. I have general liability insurance (to cover my equipment, etc.), E&O Insurance (errors & omissions), and a Service Bond (to cover theft from my clients by my company). The General Liability was $225 (State Farm) and the E&O/Service bonds were $500 & $100 respectively (NAPLIA - accounting industry specific). However, I feel that $825/year is a small price to pay for my, and my client's, peace of mind.

kathiemt · #9 (**permalink**) 03-23-2008

Quote:

Originally Posted by Office Goddess

I would contact an industry-specific insurance agency as there are literally hundreds of types of bonds and a general insurance agency may not know what kind you need.

That's why I suggested speaking to an Accountant. Perhaps it works differently where you are but an Accountant where I am is fully aware of their client's financial needs and how their business is set up. They are usually well connected with Financial Planners, Solicitors and Insurance Brokers so while they can't advise exactly what you need, they are usually well placed to point you in the right direction and connect you to the right people.

Kerans VA · #10 (**permalink**) 03-23-2008

Quote:

Originally Posted by Office Goddess

I would contact an industry-specific insurance agency as there are literally hundreds of types of bonds and a general insurance agency may not know what kind you need.

Quote:

Originally Posted by Leanna Kalka

I haven't got a specific industry that I specialize in, but could be possible that I might do some work for insurance companies and who knows who else.

Quote:

Originally Posted by kathiemt

That's why I suggested speaking to an Accountant. Perhaps it works differently where you are but an Accountant where I am is fully aware of their client's financial needs and how their business is set up.

Leanna may well not have an accountant, so this might not be an option.