In foreign trade, escrow is used to ensure the security of both parties in a transaction and protect their interests. During a contract or transaction involving two or three parties, the payment related to the transaction is held in a secure account opened at a bank or with a third party or institution until the transaction is completed. Coimex provides traders with this secure trade and payment environment through blockchain infrastructure.


What is Escrow?

Escrow is a system where digital buying and selling transactions are securely held until it is confirmed that the transactions have been correctly and appropriately completed. In Turkish, Escrow translates to “emanet,” which means entrusted. Escrow is one of the most common solutions in foreign trade today.

Escrow in Foreign Trade


An Escrow agreement is a three-party legal relationship involving the ‘transferor,’ ‘transferee,’ and ‘escrow holder.’ According to this legal relationship, the transferor, who undertakes to deliver a specific product or perform a task, is obligated to make a payment to the transferee in return. The role of the escrow holder is to ensure that payments between the parties are made after the other party fulfills its obligations.

In international trade, a company selling goods and services wants to receive payment as quickly as possible. Importers buying goods and services want to make payments to exporters after buying and selling the product. The most advantageous approach for the exporter is to sell the goods for cash upfront, while for the importer, working on an open account and making payments after selling the goods is the least risky payment method. Between these two methods, there are various payment methods such as letters of credit and document against payment that aim to reduce the risks for both the importer and exporter.

To sustain a presence in global trade, be successful, and compete, companies must not only strive to deliver high-quality products and services to the market at competitive costs but also provide attractive payment methods to importing firms.

Escrow in Cryptocurrency World


In the world of cryptocurrency, escrow works as follows: Investors use the escrow method to store their assets rather than keeping them in a cold wallet. This allows investors to more easily invest in exchanges with high trading volumes and security levels.

Advantages of Escrow Account in Foreign Trade

Escrow contracts have been widely used in the United States since the 1850s.

In these contracts, payments are secured by being transferred to an independent third party. Payment is made once the obligations are fulfilled. This is particularly useful when working with new clients or dealing with high product demands.

Operation Principle of Escrow Account


An escrow account is used to ensure the security of two parties in an agreement and protect their interests. During a contract or transaction involving two or three parties, the payment related to the transaction is held in a secure account, either at a bank or with a third-party individual or institution, until the transaction is completed.

For instance, during a purchase and sale of goods, an escrow account prevents one party from being disadvantaged by preventing payment before the arrival of the goods or the sending of goods before payment. Escrow accounts are much more practical in terms of procedures and required documents compared to letters of credit. Moreover, unlike letters of credit, which involve multiple banks, escrow transactions can take place under the guarantee of a single bank, and the opening of escrow accounts, especially within the customer’s own bank, is much faster.

Escrow involves the payment-making party, the documents specified in the contract, and the confirmation of the delivery of goods or services being held as a third-party neutral organization in the bank’s guarantee until approval is obtained. This ensures that the assets to be transferred are secured for both parties during the transaction. The buyer, referred to as the “Depositor” who transfers the financial asset to the escrow account, creates a “secure account” tied to the agreement by opening an escrow account according to the terms of the contract. The buyer is then added to this account by the bank. When the terms specified in the contract are fulfilled by the buyer, who will be entitled to the financial asset, the bank transfers the asset in the escrow account to this party with approval.

Usage of Escrow in Foreign Trade and Its Comparison with Letter of Credit

In international trade, purchase and sale contracts are widely used today. The crucial point for both parties in transactions conducted abroad is to ensure the highest level of payment security. The three most commonly used financial procedures to ensure payment security in international trade are letters of credit, performance bonds commonly used in Turkey, and escrow accounts more widely used abroad.

The use of an escrow account in foreign trade protects both the buyer and the seller. This method safeguards financial assets with a neutral third party within the context of an agreement. However, as the fee transfer occurs when specific conditions are met, it significantly reduces risks and streamlines the process.

In summary, the organization providing escrow services, typically a bank, receives financial assets from the buyer as the first step. The organization, often a bank, notifies the buyer that the assets have been received and transferred to the escrow account. Subsequently, the seller delivers the goods to the buyer as agreed in the written contract. The organization providing escrow services can monitor this shipment, providing assurance for the entire procedure. Thus, when the goods reach the buyer, the organization holding the escrow account has direct information about the delivery. The buyer has a specified period, as agreed in the contract, to conduct inspections after the goods have been delivered, reporting whether the goods have been delivered in compliance with the contract. Following a positive report from the buyer, the escrow account manager transfers the previously deposited financial asset to the seller’s account, completing the trade under the guarantee of a neutral financial institution.

The bank that opens and manages the escrow account typically charges a fee for this service. This fee is usually a percentage, often around 1% or 2%, as requested by the bank. The contract should specify who will cover this fee. Either the buyer or the seller, or both parties equally, must pay this fee as determined by the financial institution for the opening and management of the escrow account. The fee paid to the financial institution for this service is often more economical compared to using a letter of credit.

The use of an escrow account offers a highly beneficial alternative for both the buyer and the seller. It is particularly useful when the buyer’s credit rating appears insufficient, trust cannot be established, or when there is uncertainty in these regards. Escrow is also valuable when the buyer is a new customer or has not conducted similar commercial operations in the past, providing a secure method.


Apart from these, in periods and situations where the seller’s product is in high demand, and if there are too many buyers for the product, the escrow account provides a guarantee for both parties. Finally, in situations where the political and economic situation in the buyer’s country is risky, the use of an escrow account becomes an important assurance.

In summary, in foreign trade, escrow provides assurance for the parties involved in global trade in situations where there is doubt about the buyer’s payment or suspicion about the seller’s fulfillment of the shipment.

When creating an escrow account, the management of the process will be in accordance with the escrow agreement prepared by the parties. Therefore, the parties can mutually add the desired clauses to the escrow agreement. Thus, escrow accounts offer a more flexible structure for both parties compared to letters of credit.

Once the agreement is signed between the two parties, it becomes legally binding. To make changes, corrections, or additions, these must be done in writing in accordance with the contract procedure. The escrow account manager should not accept instructions that are not included in the contract and are given to them later. It is not mandatory for the entity providing the escrow service to be a bank; reliable trade organizations can also provide this service.

Advantages of Escrow in International Trade

Using escrow in foreign trade reduces the risk of fraud. The operation of the escrow system works as follows: For example, after reaching an agreement digitally on the escrow platform, the buyer deposits the payment for the product into the escrow account. The seller receives confirmation from escrow that the money has been received, and after this confirmation, the seller sends the product to the buyer. After the buyer confirms that the product has been received, escrow releases the payment to the seller. All these transactions take place online, and a commission fee is paid to escrow for the services rendered. Unlike other online payment methods, escrow allows for large amounts of money flow and charges a modest commission.

In addition, some B2B websites have started to process payments through their own platforms. Here, similar to individual e-commerce, the payment does not transfer to the seller until the buyer receives the product, and the payment is only transferred to the seller’s account when the buyer gives approval.

In recent years, payments with digital (crypto) currencies like Bitcoin have also become prominent. Digital currencies, which have their exchanges and can be produced by individuals, can be preferred as a means of payment by disadvantaged countries due to situations such as war, economic embargoes, etc. In addition, escrow payment systems also support transactions conducted with digital currencies. Online payment methods seem practical and less costly.

Escrow accounts, which are more cost-effective and practical compared to letters of credit, are widely used in many European countries and the United States. However, in our country, banks have not yet widely adopted escrow accounts in international product trading contracts. When managed with an escrow agreement that includes sufficient guarantees, escrow accounts are a highly secure payment method. The escrow account system can be preferable in international, and even national, trade. Choosing escrow for the payment of many commercial product purchase and sale contracts is not only practical in terms of time and effort for both the buyer and the seller but also provides significant guarantees to the parties involved.

Coimex provides this secure trade and payment environment to traders with a blockchain infrastructure. Coimex’s blockchain solutions, especially in insecure geographies and countries where foreign currencies and payment methods are not widely accepted, enable traders to conduct trade more securely and conveniently.

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