Funds deposited in escrow accounts can be monitored and later utilised on completion of milestones and agreed terms between parties.
As the Covid-19 continues to wreak havoc and is spreading at an alarming rate across the globe, there is an immediate need for companies, investors as well as individuals to safeguard their funds. The pandemic has spread to almost all countries and has infected more than 8.5 lakh individuals. While it has resulted in a shutdown in affected countries, several industries were crippled and forced companies and manufacturing units were forced to temporarily halt operations. The grim situation has made it imperative for all businesses to deposit funds in escrow accounts that can be scrutinised by third parties. Funds deposited in escrow accounts can be monitored and later utilised on completion of milestones and agreed terms between parties.
Covid-19 has triggered Force Majeure clauses
In the current crisis, many companies have been compelled to invoke Force Majeure clauses. These are contractual clauses that can alter the clients’ obligations and liabilities under extraordinary events or circumstances. These clauses assess the impact of the circumstances on the affected party’s ability to perform their contractual obligations. Depending on the draft, these clauses can lead to several consequences for clients. For instance, they can excuse the client from adhering to the conditions of the contract in whole or in part. Likewise, such a clause can lead to a delay in performance and entitle a party to claim a time extension for performance. It can also give a party the right to terminate a contract in unforeseen circumstances. In China, where the outbreak originated, the China Council for the Promotion of International Trade issued over 1,600 Force Majeure certificates for several businesses in the country. In India, most businesses and companies are currently assessing the situation and are likely to adopt stringent steps to combat the crisis situation.
Changes in government regulations can safeguard funds
According to industry experts, the payments industry worldwide is a staggering USD 2 trillion. In India, the USD 35 billion payment industry can leverage the benefits of advanced technology to promote transparency. In view of the current situation of a pandemic, many governments have initiated steps to safeguard funds. As the current situation can easily lead to a recession-like situation, it calls for immediate steps and policy changes by the government. The government must promote digital escrow accounts in various industries to enhance transparency and protect funds. It has already made it mandatory for unused CSR funds to be held in escrow accounts instead of the current account of the company. More such initiatives and policy changes can help scrutinise funds and prevent the crisis.
Depositing funds in escrow accounts is the need of the hour
Escrow led payment mechanisms not only safeguard funds but also enable users to release funds on completion of milestones and carry out transactions in a simple manner. As escrow funds are deposited in the bank account, they can be taken out at the completion of milestones and agreed terms between stakeholders. Such a mechanism helps prevent fraud and misuse of funds. In the real estate sector for instance, escrow accounts enhance transparency and prevent developers from diverting funds between projects. Earlier, the Real Estate Regulatory Act made it mandatory for developers to deposit 70 percent of the funds realised from buyers in an escrow account. This policy was formulated to safeguard buyer funds and build trust between buyers and developers.
Depositing funds in an escrow account helps enhance transparency and builds an environment of trust between the transacting parties. While setting up an escrow account can be a rather complicated process, modern tech platforms have simplified the process with easy-to-use digital payment platforms. These platforms are user friendly and enable individuals as well as organisations to use safe and secure digital platforms to carry out transactions. In this process, they ensure funds are used at an appropriate time by the concerned parties.The author is Founder & CEO, Escrowffrr, a digital escrow payments platform.