Escrow may be defined as a safety document which allows certain action to be taken only when the required conditions are met. For example, when buyer pays for the product or service but wants to be sure it will be delivered, money can go to the third party called escrow and be delivered to the seller when the buyer receives given product or service. Escrow can be used in many different fields of industry, and it became often used paying method with the popularity of online shopping.
Where can escrow be used?
Escrow systems can be as simple as those used on some vending machines. After inserting, the money goes into the escrow area and in the case of unsuccessful transaction can be refunded.
Escrow can be applied in the law field, too. It is used in cases of cash settlement in order to distribute the given money in the way the court considers to be the right.
Real estate industry is probably the one that uses the escrow the most in the offline world. Considering how much properties cost, it is the only smart way to close the purchase. For example, escrow fund can be held by the third party until the end of construction work or the completion of ownership process.
Many people have problem with trusting companies that sell their products online, and, even more, with trusting individuals who sell their goods over auction or similar platforms (like eBay). Using escrow system allows them to pay to the certified third party and to know that money won’t be released to the seller until the product has arrived.
Another great field which uses escrow are freelance platforms. Freelancers often have fear of not being paid, because they haven’t met their client in person and have no idea about his life and work style. Some freelance platforms have enabled the escrow option which requires the client to pay right after signing the contract, and the money would be released to the freelancer once the work is sent. That way, the chance of frauds has been drastically decreased. Both parties know that they will get the money or the service they required.
Escrow has one huge benefit for the buyer – since he’s not paying directly to the seller, there is no way the seller can track his credit card number and other personal info. That is especially important with small, unknown companies and individuals. Big companies won’t risk their reputation, but with small ones one can never be certain. Escrow service provides that sense of security that people just don’t have when dealing with sellers one on one.