Escrow
payment service ensures that seller gets paid
for shipment and buyer receives what has been
ordered for. Thus, it reduces potential risk of
fraud by acting as a trusted third party that
collects, holds and disburses funds according
to buyer and seller instructions. Escrow services
are provided by licensed and regulated escrow
agents.
When Escrow Service is to be used ?
Escrow is well suited for small to medium value
merchandise or intellectual property where conventional
payment system (e.g. letter of credit) is either
unsuitable or un-economic. It is typically used
for items purchased on auction sites, Small value
shipments, domain names, source code etc.
Tell me one good application of Escrow for Exporters
Exporters can use escrow for collecting payment
of small export shipment where buyer is unwilling
to pay in advance and Letter of Credit is an expensive
option.
It is frequently used for first-time transaction
where buyer and seller are conducting business
for the first time (consequently mutual trust
level low) and the value of shipment is small.
Another area is collection of payment for samples
that exporters send for approval. Still, a third
area could be payment for domain name or source
code for service exporters, specially in software
export.
For exporter, escrow is safer than receiving
payment through credit card, as there is no scope
for 'chargeback'. For importer, paying by credit
card to an unknown party always entails some risk.
A credible intermediary can help buyer and seller
to start business and build trust in each other.
How Seller is Protected
The financial risk of seller in an international
transaction is greatly reduced in escrow payment
as buyer has to deposit the agreed value of shipment
with escrow before seller ships the ordered product.
So, seller knows buyer has capacity to pay and
has already paid for the shipment.
How Buyer is Protected
Escrow service tracks the shipped merchandise
and verifies that it has been delivered to buyer.
Buyer then has an inspection period to check the
merchandise and decide its acceptability. The
seller isn't paid until the buyer accepts the
merchandise, or the inspection period expires.
What Happens If Buyer Refuses to Accept the Merchandise
?
Different escrow services may follow slightly
different procedure in this respect - I am describing
below a typical one:
If the buyer is not satisfied with the merchandise,
he/she can inform escrow service that the goods
will be returned to the seller. It is now the
responsibility of buyer to ship the merchandise
back to seller in good condition and pay seller
his/her cost of shipment.
The seller has an inspection period to verify
that the returned goods are in original condition.
After the seller has confirmed the receipt and
that the condition of the goods are to his/her
satisfaction, escrow will return buyer's funds
after deducting seller's shipping costs and the
escrow fees. The seller will then be reimbursed
for his/her shipping costs.
So, in the instance of buyer refusing to accept
merchandise, he/she will have to bear the cost
of shipping back the merchandise to seller, reimburse
seller his/her shipping cost and pay escrow fee.
If the buyer fails to inform escrow of his/her
decision within the inspection period - escrow
service will make the payment to the seller.
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