Regular Business Banking Account vs Escrow Account: What's the Difference?

If you are a business, managing finances likely involves operating a regular business account on a daily basis and trusting it with your daily operations and various payments. But what about those risky transactions that need high levels of trust and assurance? What about instances when you need additional security to secure funds? That’s where escrow accounts come in. A solution designed to help you pull off high-stakes transactions without a hitch!

Want to know what the differences are between an escrow account and a regular business banking account? Read this comprehensive blog to know more!

What is an Escrow Account?

An escrow account is a neutral, third-party account that holds assets or money on behalf of two other parties involved in a transaction. The funds are held until all predefined conditions of an agreement or contract are met.

The purpose of an escrow account is to provide security and trust in high-value or complex transactions by safeguarding funds until specified terms and conditions are satisfied by both transacting parties. Some examples where they are crucial include mergers and acquisitions, real estate transactions, and international trade.

Key Aspects of an Escrow Account

• Control - Neither the buyer nor the seller has direct control over the funds once they are placed into escrow accounts.

• Fund Release - Funds are only released once predefined conditions, outlined in an escrow contract, are demonstrably met. If conditions are not met, the funds are returned to the original payer, protecting them from loss.

• Secured Payments - It reduces the risk of fraud, non-payment, or non-delivery for both parties. The buyer is assured their money is safe until they receive what they paid for, and the seller is assured they will be paid once they deliver.

What is a Regular Business Account?

A regular business account refers to an account that is opened in your business's name. It is a legal requirement for most business types and is used for all day-to-day financial activities under a business’s name, and is used to separate personal finances from the finances of a business. Its main purpose is to manage financial operations such as paying vendors, paying salaries, receiving payments, etc.

Key Aspects of a Regular Business Bank Account

• Control - The business owner or authorized signatories have direct and immediate control over the funds.

• Fund Release - Funds are immediately available for use once deposited. There are no external conditions tied to their release.

• Risks - While secure against general fraud, a regular business account doesn't offer specific protection against cases where an individual may fail to fulfil their part of the transaction.

Key Differences Between a Regular Business Account & Escrow Account

Here is a brief overview of the key differences between an escrow account and a regular bank account.

Conclusion

For uninterrupted and secure transactions, it is essential that business owners understand the fundamental differences between a standard business account and an escrow account. While a regular business account is indispensable for daily operations and a legal requirement, an escrow account serves as your safeguard for critical, conditional transactions. It is essential to choose the right financial tool for the right job for efficiency. With providers like RazorpayX, you can now open an escrow account & business banking account online and manage transactions digitally for incredibly simple, compliant and secure transactions.