What exactly is Escrow?

The basic definition of Escrow is to deposit money to a third party. In total, three parties are involved in Escrow system. One party will deposit the money, second party will receive the money [after completion of the deal with party one] and the third party is responsible for giving the deposited money to the right party.

Why people use Escrow system?

Let’s take an example:

There are two people who are involved in a deal. This deal is simple: that is, one person [Person A] wants to sell its car and the other person [Person B] wants to buy it. The person who wants to buy the car has one condition: that is, he wants to test the car for two days before he will pay the money for the car.

Now in this situation person A cannot just give the car to person B for two days. What if person B do  not pay any money to person A. There is no guarantee that person A will return the car. In case he does not like the car then what if he returns the car in bad condition if compared to what the condition was when person A handed the car over to person B. Or what if the person B will vanish with the car?

This is just one simple example where we have to use systems like Escrow in order to make things safe for both the seller and the buyer.

For the above example: if person B give the full amount of money for the car to a third party, on whom both person A and person B can trust, then things can work out. The third party will have the full amount of money which they can give to person A in case person B does not return the car. Also the third party can check the condition of the car when it has given to person B so if the car is damaged in any way then third party can deduct the money for the repairs from the cash deposited by person B.

In this way person A and person B are both safe. If car has some defect then person B can tell that to the third party and claim some fine from person A for trying to sell a defected car.

Escrow is the best and the only solution for online business where people need security.

Who is this third party?

In case of freelance sites: the freelance site itself is the third party. The buyer needs to put the full amount of money or partial amount of money [depending on project nature] in the escrow: this escrow is simply the freelance site’s personal account where people can put their money. It is like a locker or safe of a bank.

Is it free to use the escrow system?

Yes: it is 100% free to use Escrow. Freelance sites always recommend to use this system.

Some freelance sites do not allow the work on the project to begin until the buyer puts the money in Escrow.