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How Escrow Service Helps In Export Import Trade

Posted at: International Trade Financial Services | Posted on: Sat 08 Apr, 2006 5:41 pm |
How Escrow Service Helps in Export Import Trade

By Amit Kumar Chatterjee

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.

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


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


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


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


Dr. Amit K. Chatterjee

Amit worked in blue-chip Indian and MNCs for 15 years in various

capacities like Research and Information Analysis, Market Development,

MIS, R&D Information Systems etc. before starting his e-commerce

venture in 1997. He writes regularly for The Great Indian Bazaar ( http://www.infobanc.com )

You may find more articles by Amit at http://www.infobanc.com/articles/index.htm

Article Source: http://EzineArticles.com/?expert=Amit_Kumar_Chatterjee

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