Are Escrow Solutions Right for Your Small Business?

Are Escrow Solutions Right for Your Small Business?

When service providers start a new working relationship with a client, guaranteeing payment can be difficult. On the other end is the client, who hesitates to pay up front, since there’s no way to ensure the agreed-upon service will be delivered. Even if it is, the client may not be satisfied with the service and since payment has already been made, there will be little recourse.

Escrow services provide a great alternative to deposits and up-front payments in full. But the option might not be the best for every business. Designed primarily for online transactions, escrow services have benefits that will work better for some business types than others. Here are a few things to consider before choosing to work with an escrow service.

How It Works

Escrow services are designed as a fix for the uncertainty of online transactions, which have become increasingly popular in recent years. A seller who wants to post an item on Craigslist, for instance, may feel some trepidation about handing over money for a large purchase, such as a car or rental property. A business may commission another business to handle its web design, knowing that the process will take multiple months.

With an escrow service, the client funds an account, with the money then held until the client agrees the work has been completed. Buyers have an “inspection period” during which they can report a problem with the product or service. If no action is taken, the funds release to the provider. The entire process protects both parties, ensuring payment is made and the promised product is delivered.

Services vs. Products

Escrow services are particularly popular with product-based businesses, since delivery of tangible items can be easily proven. A business can set up delivery confirmation for shipments and use that as proof. The seller can reject the merchandise, at which point there is a dispute resolution process, which allows professional arbitrators to make a decision. When a business is selling a car or expensive clothing, the condition of those items can be proven through the use of photos of any damage.

Service providers may face bigger challenges, however, since proving dissatisfaction with a website design or air conditioning repair may be more difficult. That doesn’t mean service-based businesses can’t use escrow services, just that tools such as deposits may be a better option.


As escrow services have gained more recognition, commonly-used services like PayPal and domain marketplace Flippa have added it to their features. Businesses can protect their transactions directly within these marketplaces. If their transactions are with consumers, they can give those customers an extra layer of confidence as they make purchases.

For businesses that have technology resources, escrow services can be built directly into their own sites. If your business regularly conducts transactions that could benefit from having money set aside by a third-party service, escrow-as-a-service may be worth investigating. These services give your customers the convenience of having the feature included in their buying process while you benefit from not having to direct each of your customers to a third-party site for escrow funding.

Like many other popular financial services, escrow services have become a target of fraudsters. Often this comes in the form of businesses recommending fake escrow sites to customers. Since this type of fraud exists, you may face opposition from some of your clients who are afraid to use these types of services. Encourage them to research the escrow site you use and go directly to the site to make payment if they have doubts. As your customers grow more comfortable, you may find that they choose to use these services for their own business dealings.