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The Advantages of Using an Escrow Company

Published by in Blog on November 19th, 2012

Learning about business – Escrow and Wise Financing

Although you may often consider them as collateral, there are many reasons to invest in any of the services available from escrow companies. In a business, they can provide crucial support and stability. From a financial perspective, one can certainly put forward a strong case for them.

Defining Escrow

Of course, it’s important to understand what escrow agencies are. Put simply, an escrow agency or company can be defined as a third party that oversees important documents, data, money or property that will be released if certain conditions are met. These conditions depend on the situation in question, but they are usually for scenarios where one side wishes to have some form of collateral to protect themselves or demonstrate a display of faith in a partnership. This could, for instance, be used to show that you have the funds or products for a possible circumstance.

Since the escrow specialists are a third party, they tend to be unaffiliated with either party and hold equal ranking with both. The reason for this is, primarily, to be in the best position to determine whether, in full accordance with the law and contracted held between both parties, the escrow can be handed over.

A Fiscal Perspective

So far, you might be wondering about the financial or business benefits escrow specialists can offer. The trick of course, is not only in the escrow specialism, but also in how you plan it.

For instance, holding your own money back is useful in various deals. If you’re negotiating with another party and are unwilling to give the money over until certain conditions are met, holding the funds in escrow demonstrates the ability to pay. Since the money is out of your hands, it will be handed over once the pre-arranged factors have been met. This is one of the most common forms of escrow.

However, you can also look at more difficult situations, such as mergers and acquisitions. This is where a more specialist escrow might be needed, such as M&A escrow. This is important, because it might not even involve dealing with the other party. Such decisions can often cause staff to leave. Putting bonuses in escrow, or other incentives, can encourage staff to stay on for a set time. In this case, the escrow simply displays your ability to pay, ensuring that you’re not making empty promises to the work force you depend on.

In short, there are countless ways to utilise an escrow company. Whether it’s solving disputes, or showing another party or staff member your ability to meet your end of a deal, it can be a very useful place to store your money.

Furthermore, if such deals don’t go through, you get your money back, whereas paying the other party straight away may lead to a troublesome legal dispute. In this way, one can easily argue such escrow services act as a form of insurance, both financially and legally.

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