Why is Escrow Better?
Escrow is the safest payment option for you and your Customers
Cash in Advance (CIA)
Cash in Advance (CIA) is a payment method in which the buyer pays the full amount of the contract before the Seller ships the goods or provides the service. This method of payment is also referred to as “prepayment” or “advance payment.” It is used in international trade to mitigate the risk of non-payment by the buyer, and applicable when the Seller has a strength position in the deal. With CIA, the Seller receives payment upfront, which eliminates the risk of non-payment for them. However, the buyer assumes the risk that the Seller defaults the delivery (time, quality, quantity of goods/service).
100% Risk on Buyer
Deferred Payment ("Open Account")
Deferred payment refers to a method of payment where the Buyer pays for goods or services after the delivery, i.e. at a later date after goods have been shipped or provided. This method of payment is also known as “credit” or “open account” payment. The payment can be made in full at a later date, or in multiple installments over time. This payment method is rather common in business-to-business (B2B) transactions and used when the buyer and seller have a long-lasting trading relationship and trust. Whereas deferred payment allows the Buyer to receive the delivery without an immediate payment, with this payment method the risk of non-payment is totally shifted to the Seller (who may never get paid). In some cases, the Seller requests a credit check to grant a deferred payment, however positive credit checks may not result in increased chances of recovering the payment in case of default (as explained below).
100% Risk on Seller
Contrary to what people believe, credit insurance does not protect a Seller when a Buyer refuses to pay for a delivery. The credit insurance company comes to the rescue of a Seller only in case the Buyer is bankrupt and totally insolvent. Therefore, Sellers that rely on positive credit checks when selling on “open account” may find themselves in troubles as a Buyer disputes a delivery and reject the payment. In these cases, the insurance will not be able to intervene, and the Seller is left with a potential loss. Therefore, the protection offered by most expensive credit insurance policies is rather “perceived” than real.
100% Risk on Seller
Cash Against Documents (CAD) is a trade finance term used to describe a transaction where the buyer pays for goods in cash, but the ownership of the goods is transferred only when the buyer receives the shipping documents (such as bill of lading or airway bill) from the seller. This type of transaction is often used in international trade to mitigate the risk of non-payment. In CAD, the buyer is able to physically inspect and take possession of the goods before paying for them, while the seller is protected by the requirement for payment before transferring ownership and releasing the shipping documents.
However, CAD may generate payment risks for the Seller: should the Buyer decide to not collect the shipping documents for whatever reason, the Seller won’t receive any payment!
100% Risk on Seller
Letter of Credit (LC)
A letter of credit (LC) is a financial instrument used in international trade to provide a guarantee of payment from a buyer’s bank (the issuing bank) to a seller’s bank (the advising/beneficiary bank). The letter of credit serves as a “promise to pay” and is typically used in situations where the buyer and seller do not have a pre-existing relationship or where the buyer is located in a different country from the seller.
While letters of credit may be a safe solution in many situations, LCs are extraordinarily expensive for small/medium sized contracts (say below 30.000 USD) as they imply high costs both for the Buyer and the Seller (total impact is between 6 to 10% of the contract value) and remarkable administrative burden for the parties.
Expensive & Complex for Seller
How Escrow Works
Our online Escrow service is easy to use, safe, and fast
Seller Creates the Escrow Contract Online
Buyer and Seller negotiate the contract offline. Seller initiates the Escrow contract online
Buyer Pays into Trustshare Escrow
Buyer reviews the contract and transfer the funds to Trustshare Escrow
Seller Delivers and Requests Payment
As funds are deposited in Escrow, Seller can ship and request release of funds
Buyer Releases Funds or Disputes Delivery
Buyer releases the funds from Escrow to Seller or disputes the delivery