What is Escrow Service?

While dealing with the online payments, risk is an important consideration. The risk becomes an important consideration because the buyers and sellers are usually two remotely located parties who are not acquainted with each other. This is where an escrow service comes into the picture. An escrow service plays an intermediary role of a trustworthy party until the transaction has been completed. The escrow service receives the payment from the buyer and holds it until it receives the acceptance and approval of the buyer.

An escrow payment service is confided in by the buyer and the seller both, during the transaction. Buyers as well as sellers, both have their benefits of using an escrow service. The seller need not worry about the receipt of the payment if their goods match the quality they promised. On the other hand, the buyer needs not worry about the paying for the goods which are below the acceptable standards. The escrow service releases the payment only after the buyer confirms and approves the delivery of quality goods.

Step-By-Step Working of an Escrow Service

A transaction involving an escrow service follows the sequence mentioned below:
• Buyer visits a trading site on the Internet and decides to buy a product listed by the seller
• Buyer places an order considering its delivery time and promised quality as mentioned by the seller
• Seller accepts the order placed by the buyer. It involves an agreement of both parties on the terms and conditions, price of the product and shipping cost, delivery time etc.
• Buyer makes the payment of the agreed amount and the escrow service receives the payment
• Escrow services confirms the receipt of payment to the buyer and the seller both
• Seller initiates the shipping process as promised on the trading site
• Buyer verifies the product quality after the shipment and confirms its timely receipt to the escrow site
• Escrow service transfers the received amount to the seller after deducting its service charge

Risk Mitigation for the Seller

Escrow service greatly mitigates the risk for the seller. Escrow service receives the complete payment from the buyer and thus, provides a sense of security to the seller. This way, the seller becomes aware that the payment has been made and cannot be forfeited for any invalid reason.

Risk Mitigation for the Buyer

Escrow service allows the buyer some time to verify the goods against the agreed quality standards. Also, the shipped goods are tracked by the escrow service upon delivery. The payment made by the buyer is not transferred to the seller unless the buyer expresses the acceptance of the delivered products.

In case a buyer is not completely satisfied with the received goods, the escrow service coordinates the dispute resolution. The escrow service ensures that the seller replaces the product and provides the product as per the quality standards expected.

On the other hand, it's also a responsibility of the escrow service to ensure that the buyer returns the product supplying sufficient reason behind the rejection or the proof of the damage or low quality of the delivered product.
The escrow service also coordinates resolution of dispute and makes a decision considering all the factors, proofs and reason supplied along with the return of goods. If the seller fails to deliver the replacement to the expected quality standards, the escrow service refunds money to the buyer deducting their own charges.

In case, the dissatisfied buyer does not inform escrow about the decision to reject the product within the specified time limit (a.k.a. inspection period), escrow service makes the payment to the seller. It is based on the assumption that the product will be considered accepted if the buyer did not raise a concern during the inspection period.