Escrow is by far the best financial contract or arrangement when it comes to carrying out secure transactions involving huge amounts of money. The primary purpose of using an escrow account is to guarantee that all parties adhere to their obligations in a deal.
What is escrow?
The use of escrow can be traced back to the 20th century, but today it has majorly evolved through the implementation of advanced technology that ensures greater security for the parties involved.
In the escrow setup, an impartial third party reserves the funds or assets until certain prefixed conditions of the transaction are fulfilled. This third party acts as the mediator that ensures fairness of execution by protecting both the seller and buyer parties throughout the transaction.
Escrow services are most commonly used in real estate transactions or where highly valuable assets are involved, like artwork or jewelry. But others like legal, finance, e-commerce, and software industries also employ escrow to facilitate secure and smooth transactions.
How does escrow function?
The escrow payment process begins with two parties deciding to engage in a transaction and seek the services of an escrow company that essentially acts as the intermediary holding funds and validating the obligations of each party before releasing the money.
Upon deciding the terms of transaction fulfillment, the buyer deposits funds for purchase in an escrow account instead of directly paying the seller. Instructions on how the money should be disbursed, contingency plans, and stipulations, are also implemented then.
Funds are held in the escrow account until both parties fulfill the terms of the agreement. As soon as the terms of the transaction are satisfied like the purchaser receives their delivery, the funds are released to the seller and the transaction completes. If, somehow, the transaction conditions are unfulfilled, the money is returned to the purchaser.
Different kinds of escrow accounts
The use of escrow has diversified over the years, and today it has become highly adaptable to different types of transactions. Escrow accounts are of several types, depending on the specific requirements of transactions. The most common is the standard type used for the sale or purchase of real estate property. Mortgage and rent escrows are also used in the case of real estate transactions.
Another kind that is gaining major popularity nowadays is the online payment escrow account, used mostly in e-commerce transactions. When a customer makes a purchase on an e-commerce platform, their money is temporarily stored in an online escrow wallet, and released to the seller once they ship the products purchased. Different kinds of internet transactions involving cryptocurrencies, automobile purchases, and mergers and acquisitions can be carried out using digital escrow wallets.
Some specialized escrow accounts used for litigation or construction purposes, are designed to contain funds until a certain milestone is reached or legal disputes are resolved between the parties involved. Then there is software escrow which is used during negotiations by the software vendors and the purchasers or licensees.
Each kind of escrow account is designed for a specific purpose and governed by its own regulations. So businesses or individuals need to understand the intent of the transaction precisely and then choose an account that best suits their objectives.
What are the advantages of using escrow?
The principal advantage of escrow payments is the security it offers both the buyer and the seller. The escrow mechanism is such that it prevents defaulting, whether it is on payment or any other delivery obligations. For instance, it helps safeguard the property buyer from a seller who refuses to transfer ownership. On the flip side, it also protects the seller from a buyer who defaults on their payments.
Nowadays, escrow services are being extensively used in the financial sector to validate potential customers for KYC and AML protocols. KYC can be a hugely complicated and time-consuming process, and errors in manual processing cannot be ruled out absolutely. But escrow, aided by blockchain technology, helps expedite lengthy KYC processes and ensures heightened fraud protection through transparency.
Using escrow in these modern times is all about benefits, including transparency and protection. This is solely because modern escrow service providers like Uniscrow are going the extra mile today to offer highly advanced levels of protection using blockchain technology. Blockchain technology has helped add superior levels of data privacy and payment protection using highly sophisticated cryptography and encryption algorithms. This has additionally empowered the purchaser with the option to track and verify the movement of funds throughout an entire transaction. This is another major benefit of using blockchain escrow.
Final Words
Using escrow can be a game-changer for businesses and individuals engaging in high-value transactions. And very importantly, whether to use escrow or not should be decided going by the specific case, since escrow might not be suitable for all scenarios. But while choosing an escrow, it is crucial to choose a reliable platform like Uniscrow, so that you can derive the maximum benefits of using an escrow account.
Uniscrow is one of the leading digital escrow services providers, that employs blockchain technology and smart contracts to expedite secure and transparent B2B trades and transactions. This platform implements high-end encryption algorithms to certify total privacy and security of transacting parties and promotes cent percent verifiability.
If you aim to establish secure escrow payments for your business, call Uniscrow for a free consultation today.