What is an escrow and who can use it
Escrow-based payments are not new because they have been around for many years. Mostly have always been restricted to large transactions like acquisitions and mergers, cross-border deals, etc. experts are saying that this instrument is becoming more and more popular because of the new technology and internet-based economy. This is because many sectors need safe and secure transactions.
An escrow account is an instrument in which escrow money or an asset is held by a third party on behalf of 2 parties that are completing a given transaction. These can hold money, funds, securities, and other assets.
Setting up such an account can be very complicated, but escrow payment services have made the process easy through platforms. This has made this instrument a safe and secure payment option.
In simple terms, it is an account by a third party that is used in keeping funds before being transferred to the ultimate party. This is a good way to provide security against scams and frauds, especially when the deal involves high asset values or areas prone to disputes e.g., Real estate.
When to involve a third-party escrow account
In most financial transactions, the seller is usually concerned about getting their payment, while the buyer is concerned about receiving their investment and receipt of goods in good condition. Using an escrow is going to solve the problem for both parties, and it is a digital payment process.
When using escrow, the buyer can put their funds in a bank-based escrow account that is supervised by a third party. The third party is going to disburse the funds from the escrow account to the account of the seller once all the conditions have been met in the agreement between the buyer and the seller. This makes everything safe because the buyer knows the funds will only be released when the agreed conditions have been met.
The party that receives the money get the money from the escrow account until the obligations have been fulfilled. This has become a great tool for those working in industries that have trust issues like the real estate sector.
The real estate market is known to be one of the industries that has the least trust. Property developers, buyers, and dealers have been fighting in an atmosphere of distrust in the real estate market for many years. Most people who have rented their homes using a dealer know the pain that comes with getting into a deal where you come out without getting your upfront payment back. There are also dealers who have a hard time getting their full payments when they have already rendered their service and the deal is done. Having an escrow system helps avoid such issues.
There is a step-by-step system followed by the escrow system that is going to make everything speculation free. Both parties can track the movement of funds and the progress of the agreement. Both the funds and offerings are going to remain in safe hands because the transactions have to be conducted under due supervision.
Escrow is a good tool to minimize fraud and also a useful concept in the domains of law, intellectual property, and the automobile sector. Emerging businesses and startups can use this tool to minimize risk for their transactions like supply chain, procurement, professional service, etc.