Is there a financial challenge when diversifying markets?
We all know that if Brexit happens, Irish agri food companies will need to diversify. Yet, to start doing business with new customers where there is no previous relationship, sometimes takes a leap of faith (on both sides).
Fertiliser or feed importers can often face the same challenge. The issue is that most buyers want credit and sellers want to get paid immediately, especially when conducting initial deals. The answer is to put the money “in escrow”.
What is an escrow?
An escrow is a financial arrangement where a neutral third party holds and regulates payment of the funds required for two parties involved in a given transaction.
It helps make transactions more secure by keeping the payment in a secure escrow account, which is only released when all of the terms of an agreement are met as overseen by the escrow company.
Why would a company use one?
Escrows are very useful in transactions where a large amount money is involved and a certain number of obligations need to be fulfilled before payment is released, like in the case of selling a shipment of dairy or meat to a new customer where the buyer might want confirmation of the quality before making a full payment, and the seller doesn’t want to ship without any assurance that they will receive payment.
Do letters of credit not offer this
assurance currently?
Letters of credit have changed where they now have greater conditions attached and, depending on the bank that issues them and where in the world you’re doing business, the conditions will vary. But letters of credit really only help the seller of the product whereas an escrow has an advantage for both the seller and the buyer.
Is an escrow as internationally
recognised as a letter of credit?
Yes it is. In the Americas they’re very common. In the aircraft industry nearly everything is sold through an escrow.
What’s the cost of an escrow?
It varies depending on the size of the deal. The higher you go, it becomes a fraction of a percent of the transaction.
Does the need for an escrow diminish as the relationship grows between companies?
Almost immediately. Companies will use an escrow for the first number of deals with a new client because it avoids the financial leap of faith. Typically what happens is that once the relationship is formed, there’s really no need for it.
What companies do you think should be using escrows?
We have a goal to introduce escrow into agribusinesses in Ireland but a large part of that is explaining the service and the benefits to potential users. It is particularly relevant to Irish agribusinesses trying to break into new markets or companies concerned about replacing suppliers which may become more amplified as a result of Brexit.
Business profile: Providing escrow services as a neutral third party, for both domestic and international clientsLocation: Co KerryEmployees: twoBusiness sector: financial services Read More
Lisavaird completes acquisition of JDS Foods
Rendering plants among largest recipients of state aid
Is there a financial challenge when diversifying markets?
We all know that if Brexit happens, Irish agri food companies will need to diversify. Yet, to start doing business with new customers where there is no previous relationship, sometimes takes a leap of faith (on both sides).
Fertiliser or feed importers can often face the same challenge. The issue is that most buyers want credit and sellers want to get paid immediately, especially when conducting initial deals. The answer is to put the money “in escrow”.
What is an escrow?
An escrow is a financial arrangement where a neutral third party holds and regulates payment of the funds required for two parties involved in a given transaction.
It helps make transactions more secure by keeping the payment in a secure escrow account, which is only released when all of the terms of an agreement are met as overseen by the escrow company.
Why would a company use one?
Escrows are very useful in transactions where a large amount money is involved and a certain number of obligations need to be fulfilled before payment is released, like in the case of selling a shipment of dairy or meat to a new customer where the buyer might want confirmation of the quality before making a full payment, and the seller doesn’t want to ship without any assurance that they will receive payment.
Do letters of credit not offer this
assurance currently?
Letters of credit have changed where they now have greater conditions attached and, depending on the bank that issues them and where in the world you’re doing business, the conditions will vary. But letters of credit really only help the seller of the product whereas an escrow has an advantage for both the seller and the buyer.
Is an escrow as internationally
recognised as a letter of credit?
Yes it is. In the Americas they’re very common. In the aircraft industry nearly everything is sold through an escrow.
What’s the cost of an escrow?
It varies depending on the size of the deal. The higher you go, it becomes a fraction of a percent of the transaction.
Does the need for an escrow diminish as the relationship grows between companies?
Almost immediately. Companies will use an escrow for the first number of deals with a new client because it avoids the financial leap of faith. Typically what happens is that once the relationship is formed, there’s really no need for it.
What companies do you think should be using escrows?
We have a goal to introduce escrow into agribusinesses in Ireland but a large part of that is explaining the service and the benefits to potential users. It is particularly relevant to Irish agribusinesses trying to break into new markets or companies concerned about replacing suppliers which may become more amplified as a result of Brexit.
Business profile: Providing escrow services as a neutral third party, for both domestic and international clientsLocation: Co KerryEmployees: twoBusiness sector: financial services Read More
Lisavaird completes acquisition of JDS Foods
Rendering plants among largest recipients of state aid
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