Do you get the entire purchase price paid out the day you sell? Often not quite. In many business deals, part of the money is withheld as security, in case a claim later arises against the seller's warranties. The two most common ways to do this are escrow and holdback.
Short answer: In escrow, part of the purchase price is deposited with an independent third party (typically a bank or lawyer) for an agreed period. In holdback, the buyer retains the amount themselves and pays it to the seller once the period has expired, provided no claim has been raised.
Escrow: A third party holds the money
The advantage of escrow is that neither party can unilaterally control the amount. It gives the seller confidence that the buyer won't simply "forget" to pay out the money, and gives the buyer certainty that the funds are actually available if a claim arises. In return, it typically costs a fee to the managing party.
Holdback: The buyer keeps the money themselves
In a holdback arrangement, no third party is involved — the buyer simply withholds part of the payment and commits contractually to paying it out later. It's cheaper and simpler to set up, but requires more trust from the seller.
How much, and for how long?
There's no fixed standard, but it's common to see 5–15% of the purchase price withheld for a period of 6–24 months — often tailored to how long it typically takes to discover any breach of warranty, e.g. after a year-end close or a tax audit. The amount and period are negotiated as part of the transfer agreement.
A growing alternative: W&I insurance
A growing share of Danish deals instead use W&I insurance to cover breach of warranty, making escrow or holdback unnecessary — the seller gets the full amount paid out immediately, and the buyer instead approaches the insurance company with a claim.
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