In the US, companies often use the phrase “licensed and bonded” to show their legitimacy and trustworthiness. Being licensed means that the person or company has been properly trained in his field, while bonding indicates that he has money set aside to settle any claims against him. Both help safeguard against poor workmanship, theft, and illegal practices, and a client should also check for documented proof of bonds and licensure.
Being licensed ensures that a service provider has been trained in the proper practices and regulations concerning his service. This means the licensee is competent and capable of doing the work at hand. It also means that the worker is familiar with the laws and standards of his field in that particular area of governance and can be held accountable if the regulations are not followed. The service provider may lose its license to operate in that municipality, state, or the country if rules are not followed.
In many cases, a company may just be licensed, but it is important they are bonded as well. This means that a bonding company has set aside money that is controlled by the state and not the company to pay in the event that the client files a claim against the business. For example, if the client hires a plumbing company and a household good was broken or stolen in the course of the plumber’s work, a client might file a claim against the company. If the ensuing investigation found the plumbing company responsible, the client would be paid out of the bond. A company can also get bonds for employees who are working with very valuable property, which usually involves a thorough background check.
The method of becoming licensed and bonded varies depending on the type of business and the area the business is located in. To become licensed, professionals commonly have to pass competency tests, show evidence of experience, pass tests to show mastery of laws and regulations, have a clean criminal record, and have a surety bond. These requirements are common, but do not apply to all businesses in all locations. Some licenses do not require a bond, so it is important for consumers to make sure that, if a company isn't bonded, that it is at least licensed and insured. In this situation, the licensing requirements and insurance policy should be reviewed by the client.
Surety bonds are three party contracts between the principal, who performs the service; the obligee, or client; and the surety, who financially ensures that the principal will fulfill its contractual obligation. The principle pays a premium fee to the surety, who in turn pays the obligee if the principle defaults on its contract. An example of this might be if a client hired a licensed and bonded lawnmower and the lawnmower only mowed half the lawn. The surety will then reimburse the client for the original fee charged as well as any legal fees from the investigation. Bond companies sell bonds to businesses at competitive prices based on the risk of the service provided.