What are Escrows?

So what is an Escrow?

 

According to the ‘legal dictionary’: “ Something of value, such as a deed, stock, money, or written instrument, that is put into the custody of a third person by its owner, a grantor, an obligor, or a promisor, to be retained until the occurrence of a contingency or performance of a condition.”

 

An escrow arrangement is an effective way of mitigating risk in a commercial transaction and is often used as an alternative to other often less flexible arrangements such as Letters of Credit, bank guarantees or to ensure the completion of financial transactions, especially where this may only be achieved over a period of time.

 

The term escrow initially applied solely to the deposit of a formal instrument or document; however, it is popularly used to describe a deposit of money.

Why might I need an escrow service?

 

With the ever growing demands of e-commerce, higher transactional values and international trading expansion, escrow usage may be a service used in order to demonstrate degrees of integrity, security and transparency.

 

The high growth in online business has seen an equally high growth in online fraud plus higher frequencies of goods or services being delivered, unfit for purpose.

 

Escrow services are important when one or more parties to the transaction are located in different parts of the world, governed by different laws, and are equally important where parties operate within the same jurisdiction.

 

In the modern world, crossing datelines and trying to deal with multi-jurisdictional territories can be stressful as well as risky, and utilising an escrow can provide not only financial protection but also promote integrity for both the buyer and supplier.

Due diligence process beforehand

 

A due diligence process will be completed prior to the agreement of escrow terms.

What are the advantages of using an escrow account?

The escrow account can offer advantages to both buyer and seller.

 

The buyer may feel secure in knowing that the assets / funds are held within a “client escrow account” until such time as he or she satisfactorily receives the goods/ services etc., while the supplier knows that the funds are available once the transaction is complete.

 

By utilising an escrow service, it is possible to eliminate the need for deposits, pre-payments or expensive Letters of Credit and to offer entirely cost-effective solutions.

 

One great benefit of an escrow account is the preservation of the funds, even in the event of a bankruptcy of the fund holder. As the escrow account funds do not belong to the person holding them, they cannot be used to satisfy that person’s own creditors.

 

What are Custodian Services?

 

Companies may require us to act as independent agents in order to provide safekeeping for perhaps pledged or non-pledged investments.

Longer periods held and multiple dispersion

 

Some escrow custodian providers may only hold monies for a relatively short period (7 days) – which is adequate for a number of transactions. At Escrow Custodian Services we are authorised to act as custodians and hold funds (for example) for whatever period is required.

 

We may also, as part of the escrow agreement, disperse funds in stages and disperse funds for multiple distribution.

Simplification of the escrow process

  • We conduct due diligence checks and carry out Anti Money Laundering checks on an individual or company
    If the check is ok (99% are) we confirm so and give authority for funds to be sent to us
  • We confirm receipt of funds
  • We await trigger docs in order to release funds. Before release we complete a compliance call (we sometimes do this prior to receipt of funds too)
  • Funds are released and we debit our agreed fees