Business escrow can help solve a common commercial problem: the buyer wants confidence before releasing payment, while the supplier wants confidence that the agreed money is secured. For an eligible transaction, GoEscrow separates funding from settlement so the parties do not have to resolve that timing problem with blind trust.
What is business escrow?
Business escrow is a structured payment arrangement in which the payer funds an agreed transaction amount before that money is settled to the payee. Funding and settlement happen at different stages.
This can be useful in business-to-business transactions where the parties are new to each other, the transaction value is material, goods or services are delivered later, or the parties want independent confirmation that funds have been secured.
How can escrow work in a B2B transaction?
- Agree on the commercial transaction. Buyer and supplier agree on what is being purchased, the amount and the relevant delivery or completion arrangements.
- Establish the escrow transaction. The parties create an eligible GoEscrow transaction reflecting the agreed payment.
- Fund the transaction. The payer funds the agreed amount into escrow.
- Confirm funding. The parties can use the GoEscrow transaction status as independent confirmation of the funding state.
- Perform the agreed commercial step. Goods, services, documents or another agreed deliverable are provided in accordance with the parties’ arrangement.
- Authorise settlement. When the applicable conditions are met, the payer authorises settlement and GoEscrow remits the escrow funds to the payee in accordance with the transaction.
Why might a business use escrow?
Many commercial transactions involve an imbalance of timing. Paying first exposes the buyer to risks in the form of non-delivery or substandard unpaid workmanship whereas delivering first can expose the supplier to payment risk.
Escrow does not remove the need for diligence or a suitable contract, but it does provide a payment mechanism that can reduce the need for either side to take all of the payment-timing risk.
Business transactions where escrow may be useful
- first transactions with a new supplier or customer;
- purchase of equipment, machinery or other valuable goods;
- transactions involving an interstate party;
- higher-value services with an agreed completion or handover point;
- transactions where a supplier wants evidence that funds are secured before committing resources; and
- transactions where a buyer does not want to make an unconditional direct prepayment.
Eligibility depends on the transaction, parties, applicable limits and GoEscrow product terms.
A real-world example of Business Escrow
Brookfield Legal Team (BLT) uses a huge amount of paper and associated products every month and so has had a recurring order of $6000/month with a supplier for the last 10 years. This supplier is shutting down so BLT is forced to find a new company to fill the order. Michael’s Paper is a small regional paper supplier who can match the price of the order but since they are small, BLT faces a risk of insolvency if they pay for their monthly orders in advance. BLT and Michael’s paper agree to use GoEscrow on a recurring basis, to secure the $6000 transaction. for the first, and all subsequent orders, the parties create a GoEscrow transaction for the order, and BLT deposits $6000 into their GoEscrow business account. Michael’s Paper can see that their payment is secured in escrow, and then fill the order. Once the order arrives in line with the transaction details, BLT confirms in the GoEscrow app to release the payment to Michael’s Paper. By using an escrow service, BLT was able to mitigate the risk of using an unfamiliar and potentially unstable supplier, and Michael’s Paper was able to be assured of payment capacity by an unfamiliar buyer.
Escrow versus paying an invoice in advance
With a direct advance payment, the supplier receives the money before the later commercial step is completed. Direct advance payment creates a variety of counterparty risks including insolvency, fraud and all-form dispute. Using escrow, the payment can be funded first while settlement to the payee occurs later in accordance with the transaction.
The underlying purchase contract, invoice and commercial obligations remain important. Escrow is the payment mechanism; it is not a replacement for appropriate contractual terms.
Escrow for equipment and machinery purchases
Equipment and machinery transactions can involve substantial values, transport, inspection and counterparties in different locations. An eligible escrow transaction can allow the buyer to secure the agreed payment while giving the seller independent confirmation that funds are in escrow before the agreed handover or delivery step.
GoEscrow does not inspect machinery, verify title or establish condition or value. The parties remain responsible for those commercial checks.
Escrow for services
For an eligible service transaction, escrow can provide evidence that the agreed payment has been funded before an agreed service or completion step. The appropriate structure depends on the transaction and applicable GoEscrow transaction type.
Businesses should make sure the payment process aligns with their contract, invoice, tax and accounting requirements.
What should a business check before using escrow?
- the identity and authority of the counterparty;
- the goods, services and commercial terms;
- the amount and transaction details;
- what event or instruction will lead to settlement;
- the cancellation and dispute arrangements;
- the applicable fee and transaction limits; and
- the formal product documents governing the escrow facility.
Does escrow guarantee the commercial transaction?
No. GoEscrow manages the financial interaction. It does not automatically inspect goods, certify services, establish value, determine legal ownership or replace the parties’ contracts and due diligence.
Frequently asked questions
Can Australian businesses use escrow?
GoEscrow is an Australian owned and operated service, and is useful for a multitude of Australian business transactions.
Can escrow be used between two businesses?
GoEscrow has been designed with B2B transactions in mind. The suitability of the arrangement depends on the underlying transaction and applicable GoEscrow requirements.
Does the supplier receive the funds immediately?
No. Funding and settlement are separate. The payer funds the transaction first and settlement to the payee occurs later in accordance with the transaction.
Can escrow replace a commercial contract?
No. Escrow is a payment mechanism. Businesses should maintain appropriate commercial documentation and obtain professional advice where required.
Commercial payment-risk guides
See Upfront Payments and Deposits, Progress Payments and Staged Payments, and Bank Guarantees, Performance Bonds and Escrow.
Learn more about Australian escrow
For an overview, read Escrow Services in Australia: How Escrow Payments Work. GoEscrow also supports eligible private-sale transactions; see Safe Payment for Private Sales in Australia.
GoEscrow product information
Before proceeding, review the Product Disclosure Statement, Financial Services Guide and Terms of Use. Check the applicable fee and limits for the actual transaction before funding.
