Definition of Escrow
Escrow accounts commonly known as joint accounts, escrow accounts are joint accounts managed by third parties or escrow agents . This agent is not only tasked with managing funds, but must ensure that all parties involved fulfill their obligations and obtain their rights.
Simply put, an escrow account can be understood as an account provided by a third party to collect and distribute funds to parties involved in online transactions . These third parties are known as escrow agents . The existence of an escrow agent not only manages funds, but also ensures that the parties involved in the transaction carry out their obligations and obtain their rights.
For example, when you buy goods through an online buying and selling site , the agent will receive an amount of funds according to the price of the goods ordered and added shipping costs. The funds paid will be held in an escrow account until the seller sends the goods to the buyer for a while. If the buyer manages to get the goods, the funds will be directly channeled by the agent to the seller.
Escrow Account Benefits
In principle, an escrow account is to increase security in online transactions , where the parties involved in transactions do not meet face to face. The escrow account service system has received a positive response from the public because it is considered capable of reducing the number of fraud cases that occur in online buying and selling transactions .
The use of an escrow account in principle guarantees transaction security for both parties. Not only that, escrow accounts also benefit the transacting parties. This is because an escrow account actually provides benefits for both parties.
Protecting Buyers
In online buying and selling transactions , the buyer is often the one who is harmed because he becomes a victim of fraud. The mechanism for online buying and selling transactions generally is that the new seller will send the goods to the buyer, after the buyer makes payment via bank transfer. Of the many cases of online fraud that have occurred, sellers do not send goods to buyers even though the buyer has made a payment.
With an e scrow account , the buyer's right to get the goods ordered is protected. This is because payments for purchased goods are not made directly to the seller's account, but to an escrow account provided by an escrow agent . If the seller does not immediately deliver the ordered goods within the specified or mutually agreed time period, the buyer can withdraw the funds that have been paid. Thus, the buyer does not experience a loss of assets in the form of money that has been paid.
Protect Seller
Fraud in buying and selling online does not only take victims from the buyer, but also the seller . From the existing cases, the buyer claimed to have made a payment via transfer to the seller's bank account. Furthermore, the buyer urged and even forced the victim to immediately send the goods he ordered. Due to the negligence of the seller who did not check his account first, the seller sent the goods at the request of the buyer.
In order to avoid online fraud , the use of an escrow account is very beneficial for sellers. The new seller will send the goods to the buyer, if the buyer has actually made the payment. This is of course confirmed by the escrow agent who is the intermediary in the sale and purchase transaction. After the buyer receives the goods ordered, the seller has the right to get the amount of payment that has been transferred by the buyer.
How Escrow Works
Seeing from its function, it is not strange if escrow or joint accounts continue to be used until now. With more and more online transactions , the function is increasingly relied on. If you are also an agent of buying and selling or online transactions and investments , it is important to know how escrow works itself.
- First, the parties who wish to make transactions agree to use the escrow account service so that transaction security is guaranteed. Make sure that each party, both the seller and the buyer, understands how the escrow account works .
- After selecting the items to be purchased, the buyer then selects a payment method. Generally, agents provide several payment methods that buyers can choose from.
- Then the buyer pays an amount of money according to the price of the goods and shipping costs to the destination address through the account or account provided by the agent.
- The agent accommodates and temporarily stores the money paid by the buyer.
- Next, the agent informs the seller that the buyer has made a payment and asks the seller to immediately ship the goods.
- Information from the agent is then followed up by the seller by sending the goods ordered by the buyer to the previously informed destination address.
- The seller then confirms to the agent that the goods have been sent to the buyer as well as informs the delivery receipt number.
- The agent informs the buyer of the goods delivery receipt number so that the buyer can track the goods he has purchased.
- After the goods arrive at the destination address, the buyer confirms the agent that the goods have been received.
- Finally, the agent sends funds or money from the sale of goods to the seller's account.
- Conclusion
This is an explanation of escrow and its uses. Of course, the benefit of having an escrow account is that you guarantee your rights as both a buyer and a seller. Immediately take care of opening an account so that your buying and selling transactions can take place comfortably.
This complete explanation must be understood by both the seller and the buyer so that they do not suffer losses and the seller is able to maximize his profits.
For sellers who have been able to maximize their profits, don't forget to keep recording their business profits on the company's income statement so they can know for sure how much profit the company has earned.
An escrow is a financial arrangement in which two parties hire the services of a third party, known as an escrow agent (who is not the Buyer or Seller), to hold money or assets for them in an escrow account until both parties have fulfilled their contractual requirements.
The term ‘escrow’ originates from the French word ‘escroue’, which means a scrap of paper or a parchment scroll; this indicates the deed that a third party holds until a transaction is complete.
The escrow agent aids in the transaction’s safety by safeguarding the Buyer and Seller’s assets until both parties have fulfilled their obligations.
Escrow is commonly associated with real estate transactions, but it can be used in any scenario where funds are transferred from one party to another. With real estate, escrow can be used when purchasing a home or for the life of a mortgage. The use of escrow has been on the rise as a way to offer secure transactions for high-ticket items, such as stocks, art, jewellery, antiques or intellectual property like software source code.
Escrow Transaction Flow
1. Buyer and Seller agree to the terms and conditions of the transaction.
2. The Buyer deposits funds into the escrow account.
3. The escrow agent informs the Seller that money has been deposited into the Escrow account.
4. Seller ships the product to the Buyer or performs the requested service.
5. The Buyer receives the product or service.
6. The escrow agent releases funds to the Seller from the escrow account.
Key Points:
1. An escrow is a financial agreement in which a neutral third party (the escrow agent) controls payments between two parties and only releases the funds involved once a contract’s terms are met.
2. The escrow agent temporarily holds money, paperwork, or other assets for a transaction on their behalf in an escrow account.
3. Escrow is commonly used in real estate and high-value online transactions.
4. An escrow account helps minimise fraud and is very useful in the transfer of intellectual property from one party to another.
