When a third party holds assets or funds on behalf of two parties involved in a transaction, the financial arrangement is called an escrow account. In Bangladesh, such accounts are generally used in online services, real estate transactions, or mergers. They ensure trust and security between buyers and sellers.
Keep reading to find the answer to your question: ‘What is an escrow account, and how does it work in Bangladesh?‘ provided by Legal Advice BD.
What is an Escrow Account?
An escrow account is a temporary, independent, trusted third party that holds funds on behalf of the parties involved in a transaction. It allows for a smoother process between all parties, builds trust, promotes transparency, and guarantees safe, secure payments.
This legal agreement protects both the buyer and the seller. If the parties are dissatisfied with the services they received, they have the right to file a complaint via the Online Dispute Resolution (ODR) system. This standard operating procedure was created to ensure that the buyers’ and sellers’ interests are safeguarded. Until the requirements are fulfilled, the goal of this account is to prevent any unjust money release.
How Does an Escrow Account Work in Bangladesh?
ESCROW complies with the Digital Commerce Operational Guidelines 2021. To know how it works in Bangladesh, go through the following process!
1. Buyer Logs into an Online Marketplace
A buyer must log in to an online marketplace to order products or services. Various terms and conditions are provided on the website, and buyers must agree to them if they wish to pay through escrow. For e-commerce, other payment options like Cash on Delivery and bank transfers are also available.
2. Agreement with Terms and Conditions
Buyers have to agree with payment terms, fees, terms, and conditions. Afterward, the user can make the payment through the escrow payment process. It is provided by a third-party payment service provider.
3. Notification to the Seller
The seller is sent a notification by the third-party escrow service provider. It is done after the payment has been confirmed. Later, the courier will dispatch the product to the buyer.
4. Buyer Confirms Receiving the Product
The buyer has to confirm receiving the product through a notification. Until they do it, a third-party payment service provider will hold the funds.
5. Release of Funds to the Seller
The buyer will permit the ESCROW service provider to release the funds to the seller if they are happy with the products or services.
6. Automatic Transfer of Funds
The money will be immediately transferred to the seller’s account with a charge deducted if the buyer doesn’t reply by the prearranged time and date or if the claim period has passed.
7. Handling of Disputes or Returns
However, if the buyer is not happy with the delivered product, they can return the product to the seller within the claim period. In certain cases, online escrow payment services offer options like partial payment release in case of high-volume transactions like airline tickets, jewellery, etc.
For businesses engaging in digital commerce, it’s crucial to understand VAT registration and the necessary documentation to comply with Bangladesh’s tax laws when using ESCROW services.
Step-by-Step Process of Escrow in E-Commerce Transactions
If the E-Commerce platform runs multi-vendor operations, the process with the escrow platform is a bit different.
Firstly, an E-Commerce platform has to register itself in an escrow platform. All the vendors of that platform have to register to the ESCROW platform through API.
Secondly, escrow will complete the transaction and notify all the parties of any online transaction. It includes customers, sellers, and e-commerce platforms through different channels like SMS, email, and API.
Thirdly, until the disbursement criteria are fulfilled, the transacted amount will remain in a trust-cum-third-party account. If any issue arises within the given time frame, it will be referred to the ODR system by the ESCROW.
Later on, the disbursement and refund will be executed according to the decision taken by the ODR system.
If you’re looking to understand more about related legal and financial processes, you can learn more about the process of how to register a company in Bangladesh.
Special Features of Escrow for E-Commerce Firms and Buyers
- E-commerce platforms will confirm if the buyer has paid before the seller sends the product.
- They will handle the refunds to prevent fraud and scams.
- The platforms will solve if the buyer has issues with the product.
- Sellers won’t be paid unless the buyer receives the products
- E-commerce platforms will actively ban fraudulent sellers from the platform.
- If the buyer has issues with their products, they will try to settle it down.
Top Benefits of Using Escrow Accounts in Bangladesh
- Protection of Both Parties:
ESCROW accounts make sure that the buyer’s money is protected until all the conditions are met. Similarly, sellers also get assurance that the buyer has sufficient money to complete the transaction. This system of giving mutual protection reduces the risk of defaulting.
- Creating Trust and Transparency
Both sellers and buyers can track the status of transactions. The involvement of a neutral third party ensures absolute fairness, which is particularly beneficial in high-value transactions.
- Smooth Transaction
Escrow accounts simplify transactions by specifying the exact date of the payment release. The entire process speeds up as both parties must satisfy specified conditions. It promotes faster agreement completion, particularly in business and real estate transactions.
- Reducing Risks
Escrow accounts decrease the risk of fraud, especially with transactions of great value like business-related or real estate deals. As the money is protected by a third party, neither the buyer nor the seller can earn wrongfully. This assures that the terms are completely fulfilled before any release and serves to protect both parties.
- Solving Conflicts
The escrow service helps in settling conflicts by transferring funds as per the conditions that have been decided upon. Delays and issues are avoided in this way. The fair agreement is guaranteed by the unjust handle. It is particularly applicable in situations where conditions are unclear or both sides dispute. The system offers an option for reconciling disputes.
For businesses involved in high-value transactions, it’s essential to understand how to obtain an export-import license in Bangladesh to comply with trade regulations when using ESCROW accounts.
Conclusion
The working process of an ESCROW account in Bangladesh is simple. This is a great facility for e-commerce platforms. However, it is important to stay vigilant while doing any transaction. If you see anything suspicious, report it immediately. Furthermore, if you have any questions, reach us at Legal Advice BD.
Hopefully, you got the answer to your question: ‘What is an escrow account, and how does it work in Bangladesh?