Things to Know about Escrow Account and Banking

Escrow is a legal concept where an asset or financial instrument is held on behalf of two parties by an unrelated third party. This service is generally availed of when two parties are in the process of closing a transaction.

The escrow service provider holds the asset or the funds in this account until it receives the instructions or until the obligations as per the agreed terms are fulfilled. The escrow agent may hold various instruments, such as funds, securities, or money in such accounts on behalf of the parties.

In the midst of any transaction, it is likely that one of the parties is interested in moving ahead only if he is assured the other party is capable of fulfilling his obligations. For example, an exporter would sell his products in an international market only when he is assured of getting paid. Similarly, the importer would like to pay the money only when the goods are received in an undamaged condition. In such an instance, an escrow account proves to be beneficial. The importer may deposit the amount in this account, which will be paid to the exporter once the importer instructs the agent to do the same.

About an escrow account

Many people are not aware of what is an escrow account. In simple terms, it is a temporary pass-through account with an unrelated third party when two parties are in the procedure of completing a transaction. The account is valid until all the terms and conditions are met with both the parties and the transaction is completed.

Four features of an escrow account

1. Custodial services

Opting for a reliable escrow account in India service provider provides a one-point contact for efficient, effective, and seamless execution and co-ordination.

2. Regulatory liaison

The service provider may also approach different regulatory authorities on behalf of the clients if required. The agent may assist in seeking special approvals by presenting the case and following up to procure these approvals.

3. Transaction structuring

A reliable escrow agent will be beneficial in structuring the transactions with merchant bankers, investment bankers, and legal partners.

4. Foreign transfers and remittances

The escrow agent employs experienced personnel who have the knowledge for efficient document processing. Therefore, clients may be assured that foreign transfers and remittances are completely transparent and adhere to regulatory guidelines.

Here are six advantages of using escrow services.

1. The transacting parties are assured of safe movement of funds

2. Customization of the transactions as per the requirements of the parties is possible

3. The entire documentation is simple

4. Clients may operate multiple accounts to complete transactions through waterfall mechanism, which means priority based payments may be made to the concerned parties

5. Account holders may easily track the activities in the escrow account through the online platform 

6. Most banks provide a dedicated and experienced team of personnel to ensure the clients are able to maximize operational efficiency

With this type of account, both the buyers and sellers enjoy several advantages. The interests of both parties are protected through this account. There is no ambiguity or uncertainty, thereby providing peace of mind to complete the transaction. By opting for such an account, both the parties may simplify the entire transaction without any difficulties.