Updated: Apr 15, 2021
Source: Reproduced article from trade journal
Clarify your doubts on #Escrow Accounts and when to use it
An escrow account is a third party account where funds are kept before they are transferred to the ultimate party. It provides security against scams and frauds especially with high asset value and dispute-prone sectors like Real Estate.
Escrow accounts can hold money, securities, funds, and other assets.
Escrow-based payments have been around for years and are not new. However, they have mostly been restricted to large transactions, like mergers and acquisitions, cross-border deals, etc. Industry experts say, with new technology and the rise of the internet-based economy, this instrument is used by stakeholders from several sectors to have safe and secure transactions.
Escrow accounts are a financial instrument in which an asset or escrow money is held by a third party on behalf of 2 other parties that are in the process of completing a transaction. Escrow accounts can hold money, securities, funds, and other assets.
Setting up an escrow account is a complicated process but technologically advanced escrow service providers of today create easy-to-access platforms, democratizing the escrow service as a safe and secure payment mechanism.
In simpler terms, an escrow account is a third party account where funds are kept before they are transferred to the ultimate party. It provides security against scams and frauds especially with high asset value and dispute-prone sectors like Real Estate.
When should you involve a third party escrow account?
Usually, in a financial transaction, the seller’s concern is regarding the assurance for receiving the payment, whereas the buyer is concerned about their investment and receipt of goods in sound condition. This is easily solved with the use of escrow, a digital payment process.
Ashwin Chawwla, founder and CEO, Escrowffrr says, “Using escrow, a buyer can place their funds in a bank-based escrow account which is supervised by a third party. The third-party disburses the funds from the escrow account to the seller only after all conditions in the financial agreement between the two parties have been met.” Escrowffrr is an escrow focused, digital payments platform.
The party receiving the money can not make withdrawals from an escrow account until the set obligations are fulfilled. Hence, this proves to be a powerful financial instrument that removes trust-based issues in sectors like real estate.
Chawwla, of Escrowffrr, says “Property developers, dealers, and buyers have been regularly fighting an atmosphere of distrust in the real estate market for the past many years.” He further adds, “An average person who has ever rented a home through a property dealer, knows the pain of getting into a deal that is difficult to come out of without losing the upfront payment. Similarly, most dealers also struggle to get their full payment from the parties that take their services after the deal has been concluded. But, having an escrow system in place prevents such dubious occurrences.”
The escrow system follows a step-by-step timeline which makes transactions speculation-free. The transacting parties can track the movement of funds and progress of the contractual commitment. Since the transactions are conducted under the due supervision of diligent professionals, buyers’ funds and sellers’ offerings remain in secure hands.
Experts say, not only does an escrow account helps in minimizing fraud, but it is also a very useful concept in the domains of intellectual property, law, and automobile sector. Additionally, startups and emerging businesses can leverage escrow payment methods to minimize risk for their specific-use transaction cases like procurement, supply chain, professional services, etc.