What is Escrow and How does Escrow Work?
Sometimes, you go into a business transaction and you’re not satisfied with the outcome.
Maybe; the goods you ordered weren’t complete, the car you bought last week developed a fault, your tailor did an awful job, or the guy you borrowed money failed to pay back. Or worse, you got scammed.
It happens to all of us. These are some of the reasons you need to know about Escrow.
Escrow is not so popular in the Nigerian market. And most people either don’t know about it, or they don’t understand the importance of the concept.
In this post, we’ll define escrow, give a real-life example of how businesses use escrow today, and explain why escrow is important and how you can start using escrow in your business transactions.
What is Escrow?
Escrow is an agreement between two parties, the buyer and seller, in which they invite a third party to hold all the money/assets until both parties complete the transaction, to protect them from being scammed and making sure everyone keeps to their end of the bargain.
A bit confusing, right? Let me break that down for you.
The buyer pays to the third party, not the seller. After receiving payment, the third-party informs the buyer and tells the seller they have received payment. Then, the seller has to send the goods to the buyer. When the buyer gets the goods and is satisfied with them, she then notifies the third party. And finally, the third party pays the seller.
It’s simple; Escrow is the neutral middle body that makes sure you’re satisfied with every business transaction.
Escrow receives all the information about the transaction, ensures all instructions, terms, and conditions are followed and documents for the transactions are handled properly to close the deal without a problem.
Real-Life Example of Escrow
Let’s assume you want to buy a used car. Remember, most used cars usually have a fault the seller won’t want to tell you about.
Instead of paying directly to the seller, you deposit the money in an escrow account. And attach conditions to the sales agreement. The conditions might be that the seller has to repair all faults the car might have, paint the car, and complete all necessary documentation.
Then, the Escrow Company will not pay the seller until he completes all sale agreements. And the escrow provider will not refund back your money until the seller fails to meet the specified agreement.
In rare cases when the buyer lies about not being satisfied, the seller and the escrow company can analyze the sales agreement. And if there’s proof that the seller settled the terms, the escrow company will pay the seller regardless.
Why You Need Escrow?
Now you know what Escrow means. You might doubt why you should abandon your current payment process and embrace the security escrow assures.
Escrow sells itself.
With escrow, you can dance into any business transaction without the fear of being scammed, with full confidence that you’ll come out on top and get your money/asset’s worth.
Let’s imagine a before and after scenario.
Before, if the seller didn’t meet the agreed terms, you had to pester the second party to get your money/asset back. Most times things get rough and you end up losing on many sides.
But with Escrow, no need for asking the second party for your money. If the terms of the agreement aren’t satisfied, you can notify your escrow company and your money will be returned to your account. Like it never left!
How much are Escrow Fees and Who Pays?
The fee for escrow services varies with different escrow providers.
For example, Middletrust, Nigeria’s most reliable escrow service provider, charges 2.8% + ₦200 on every transaction.
This fee is capped at ₦8,000 meaning that ₦8,000 is the highest amount you’ll be charged for using Middletrust.
The fee can be paid by one party or shared by both parties, depending on the initial agreement between the buyer and seller.
How does Escrow Work?
You know a lot about how Escrow secures your financial transactions and make sure you never get scammed or defrauded.
But you might ask, what’s the way forward?
You finally want to explore this unfamiliar world of secure business deals, but you don’t know where to start from.
The first thing to do is to know what to do. So, here’s what you should know about securing your next business deal as a buyer/seller.
For Buyers:
- Agree on price and term with the seller
- Sign up on Middletrust
- Fund your Middletrust account with the amount required for the transaction
- Create a transaction, stating the price, terms, and other details
- Wait for the seller to agree on the transaction
- The seller delivers the product and you inspect it to make sure it is exactly as agreed
- You approve to complete the transaction
- Middletrust pays the seller
For Sellers:
- Agree with the buyer
- Sign up on Middletrust
- Accept the transaction
- Deliver the product
- Wait for the buyer to approve
- Get paid
Which Escrow Provider Should You Use?
There are a lot of escrows providing companies in Nigeria, but Middletrust offers you the best value for your money.
- Bank-Grade Security to ensure that your escrow account is safe from unauthorized access
- As much as ₦10 million insurance on your transaction which ensures that your never lose your money even in a worst case scenario
- 24/7 support so you’re never left in the dark.
- Instant notifications so you can track every level of your transaction.
- A dispute resolution specialist to intervene in case of a misunderstanding.
These are a minor part of what Middletrust offers.
But don’t take our word for it. See for yourself.
Click the link to explore the scam-free world of Middletrust Escrow.
