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What is an escrow account?

Category: Finance
On June 14, 2022

Escrow is used when funds are held by an impartial, respectable and jointly-appointed third party. The escrow agent will transfer the funds only once the counterparts agree on the satisfactory quality of the product.

The set-up of an escrow agreement solves many trust issues between counterparts with limited information about each other.

Brought to you by Velotrade, a marketplace for corporates to access working capital by securing advance payment from investors.

In plain english, we provide financing.

Escrow: Parties Involved

There are 3 parties involved in an escrow account service agreement:

  • The buyer (purchasing company or individual)
  • The seller (a supplier, factory or a trading company)
  • The escrow agent (the escrow service provider)

How Does The Escrow Account Work?

An example using EXW InCoTerms:

After settling the commercial terms (sale agreement), all the parties agree to use the escrow account provided by Velotrade.

The parties involved are onboarded after the due diligence procedure, Know Your Client – KYC. This standard practice assures customers’ legitimacy and helps identify risk factors, such as:

  • anti-money laundering
  • embargo & international sanctions
  • financial frauds, terrorism financing, and other financial crimes.

Subsequently, all the parties involved in the escrow service must sign a  Non-Disclosure Agreement (NDA).

Once the KYC and the NDA are accepted, the buyer, seller and the escrow agent sign the Escrow Agreement. 

The buyer transfers the funds into escrow.

The escrow agent informs the seller of funds receipts, and the production process can begin according to the terms in the sale agreement.

The funds are held in trust in a segregated client account at a well-known financial institution (a large commercial bank).

After the goods are produced, the buyer can verify the quality and the conformity of the items to the purchase order (Quality Assurance). If the articles conform with the sale agreement, the buyer will instruct the escrow agent to release the funds.

The funds are transferred to the seller’s bank account.

The forwarder collects the goods, and the buyer gains ownership of the goods, which are then sent to the loading port to clear customs.

Are You Looking For an Escrow Agent?

If you are looking for an escrow account service, Velotrade is the agent that you are looking for!

Our KYC is fast, simple and fully digital.

We do not ask you to fill out endless paper forms and send the documents to our office; we use electronic signature verification.