Escrow service is a popular payment process in which a third-party contractor agrees to facilitate a transaction between the seller and the buyer. The escrow agent or company accepts funds from the buyer and notifies the seller that the payment has been made after doing the proper verification. The seller subsequently is expected to provide their relevant service or send the goods to the buyer within an agreed-upon time frame. As the goods or services are accepted by the buyer, the funds managed by the escrow agent on their behalf are released to the seller.
While traditionally used more majorly for real estate transactions, the escrow process is becoming popular in several other domains today, including international trade. This payment system attempts to fill in the gap between cash in advance and open account trade. Due to the nominal escrow account fees prevalent today, it has gained prominence as one of the most cost-effective means to provide all parties involved in a transaction with a certain degree of security.
Here are some important points you must know about the escrow process:
- Escrow accounts by reputed companies such as Tazapay function like a trustee system in a manner where the payment is kept under the guarantee of a neutral third party until the buyer receives the services, goods, or even documentation specified in the contract.
- Among the biggest benefits of an escrow account is that it provides security to all the parties in a transaction. There is no cap on the number of parties involved in an escrow settlement, making it a practical option for situations where there are several intermediaries.
- Escrow accounts provide an assurance quite similar to that provided by letters of credit. However, in comparison to the latter, escrow accounts are way faster to operate regarding the documentation and procedure involved. Unlike letters of credit, escrow procedures can be carried out with the assurance of just one bank. While in the case of letters of credit, the banks of both buyers and sellers tend to be involved.
- The duty of the agent or the bank, who is designated as the ‘paymaster’, includes maintaining controls and managing the entire transaction process while making sure that the funds smoothly transfer and the escrow account is kept clear of any kind of unwanted interference.
- The prime agents involved in the escrow procedure would be the financial institutions, most commonly a bank. As a result, it is important to consider the reliability of this institution before seeking out its assistance to facilitate maximum security of the transaction.
- The escrow agreement text must particularly outline the provisions to be applied in the situation of defaulting on any of the obligations. This document serves as the constitution of the escrow account, on whose basis the entire payment process would be governed.