Escrow and Payment Security in Equipment Trades
Options compared
| Mechanism | Protects | Cost and hassle |
|---|---|---|
| Escrow | Both parties, against non-delivery or non-payment | |
| Moderate, and delays settlement | ||
| Letter of credit | Seller against buyer default | |
| Bank fees and paperwork | ||
| Staged payments | Buyer, against partial delivery | |
| Needs clear milestone evidence | ||
| Advance payment | Seller | High risk for the buyer |
When to use escrow
- First trade with an unknown counterparty.
- High-value used equipment shipped overseas.
- Where inspection and payment cannot be simultaneous.
Escrow terms should state what evidence releases payment. Ambiguity defeats the purpose.