n commercial transactions, suppliers require more and more to get paid once the order is confirmed, while Buyers want to be sure to get what they pay for, and prefer to pay once the goods are delivered.
In such cases, an escrow agent can be an efficient solution to solve each party’s concerns.
What is an Escrow?
An escrow is a compromise where something being transferred from one party to another in a transaction leaves the hands of the sending party but is held in trust buy an intermediary (the Escrow Agent) before being delivered to the receiving party. Typically, the escrow consists of cash, but realistically almost anything of value being transferred from one party to another can be put into escrow. The Escrow Agent’s delivery of the escrowed cash or assets to the supplier will be subject to an escrow agreement entered into among the transaction parties and the Escrow Agent (the Escrow Agreement).
How Do You Choose Your Escrow Agent?
The selected Escrow Agent should be neutral, to make sure that he will execute the agreement fairly, and not privilege any party
For this reason, a licensed Trustee Company, like Fidinam Hong Kong Trustee, can be an optimal solution.
Once chosen the Escrow agent by the Buyer and the Seller, the parties will sign the Escrow Agreement, which will include a stated fee to be paid to the Escrow Agent (the Escrow Fee). The Escrow Fee can take many forms, but will usually be a percentage of whatever amounts are deposited with the Escrow Agent, plus expenses. The payor and the payee would also have to agree between themselves whether one of the parties should be fully responsible for the Escrow Fee, or if the Escrow Fee should be split between them.
Using an Escrow Agent When Buying and Selling Goods
A common situation where an escrow can be useful is in the purchase and sale of goods.
In the situation where the seller will have to ship the goods to the buyer, this buyer doesn’t want to send any money to the seller without certainty that the goods will be delivered, while the seller does not want to run the risk of shipping the goods without any guarantee of being paid.
In this situation, both parties could solve their concerns by having the purchase price held by an Escrow Agent. The Escrow Agreement could stipulate that the Escrow Agent will hold part or all of the purchase price until the delivery/conformity of the goods is confirmed. Upon that confirmation, the Escrow Agent would then deliver the funds to the seller. If the seller fails to deliver the product within a specified period of time, then the Escrow Agent would be required to return the funds to the buyer. The use of the Escrow Agent gives both the buyer and the seller comfort in knowing that a third-party has a contractual obligation to honour the expectations of the transacting parties.
Fidinam Hong Kong Trustee
Fidinam Hong Kong Trustee provides escrow services to its clients, allowing them to secure and facilitate their transactions, especially for trading activities involving significant amount, between parties who don’t have a strong and solid prior trade relations.
Contact our experts at Fidinam Hong Kong or learn more about our Trust services.