Can an escrow account help your business?

What is an escrow service?

An escrow service is a financial arrangement where a neutral third-party looks after funds until specific conditions are met.

It’s most famously used in America for house purchases - but is also common in the UK for mergers and acquisitions, construction, and engineering deals. 

An escrow looks to eliminate risks for both parties, who agree to the specific conditions that must be satisfied before the agent releases the assets or funds.

For tradespeople, an escrow ensures the customer's payment is securely held and ready for release once work meets agreed standards. This reduces time spent chasing debts and provides payment certainty before purchasing materials

For the consumer, an escrow guarantees that people get exactly what they paid for as described in the contract, or their money back. It reduces the risks of shoddy work, or incomplete builds.

How does it work?

Once you have chosen an escrow agent, you create an escrow agreement. This exact format of this may vary, but it usually includes:

• The amount to be paid
• The conditions that need to be satisfied for the money to be released
• The details of the account where the funds will be held
• The fees paid to the escrow account
• The process the agent needs to follow to release the money 
• What happens if the conditions have not been met.

Some agents will ask you to nominate a referee, but plenty offer a neutral referee service for those who cannot agree on one.

Both parties need to agree to the conditions, and either side can make changes to the terms before signing.

If all goes well, and the work is completed according to the agreement, the escrow agent will release the funds to you. If there is a dispute, you should try to come to an agreement between yourselves first through mediation.

If you can’t agree, then the transaction will go into arbitration. The exact process for this will vary, but it is governed strictly by the arbitration act 1996. 

Most escrow providers detail how arbitration works on their websites. For example at Transpact, an escrow service tailed towards tradespeople, the process is as follows:

• Both parties are asked to pay the arbitration fee. 
• Once one party has paid, the other has a set number of days to also pay. If the fee is not received, this is taken as an admission that payment is due in full to the other side. 
• Once both fees are paid, the referee becomes the arbitrator and decides to whom payment should be made. The referee is free to make whatever investigations they deem appropriate.
• Once the referee is satisfied that they have taken sufficient evidence from both sides, they will authorise payment to the party that has correctly met the transaction conditions. The referee can split payment between the two parties.
• The referee will also authorise the repayment of arbitration fees to one party (this can also be split). This ensures that where the referee decides one party is innocent and the other fully to blame, the innocent party incurs no net expense from the process.
• As soon as the payment instruction is received from the referee, Transpact transfers the money into the correct account.

What are the pros and cons of using an escrow service?

Here are the pros and cons to weight up first: 

Pros: 

• Guaranteed payment – Funds are securely held and only released when work meets agreed terms, reducing the risk of non-payment.
• Customer confidence – Customers are more likely to commit knowing their money is protected until the job is completed properly.
• Faster dispute resolution – Many escrow services offer arbitration, which is quicker and less formal than court, potentially saving time and legal costs.
• Supports Trusted Traders code of conduct – Encourages transparency by ensuring clear written quotes, staged payments, and work agreements.

Cons: 

• Service fees – Both parties typically pay fees for using escrow, and disputes may incur extra arbitration costs.
• Clear contract needed – Conditions must be well-defined, covering timelines and unforeseen costs, to prevent disputes.
• Time commitment – Researching escrow agents, setting up agreements, and responding to disputes can take time.
• Strict deadlines in disputes – Missing an arbitration fee deadline could mean automatically losing the case.

How to find an escrow service? 

You should make sure that your Escrow service provider is regulated by the Financial Conduct Authority (FCA). 

There are various types of institutions that offer escrow services including lawyers, banks, estate agents, accountants, and bespoke payment service providers. Where possible, ensure that the agent you choose is governed by a professional body.

The money you pay in should be segregated and ring-fenced. This means that it can only be used for your benefit. It should be held in UK banks that are secured under the FSCS scheme (or another equivalent EU scheme). This means that you’re protected if the bank or building society goes bust. 

Fees are an important consideration, and can vary significantly. You should also check whether the escrow account pays interest on money that is held with it.

Several escrow services are available, including options tailored for tradespeople. Transpact, for example, is one of Europe's larger escrow providers and has partnered with TrustMark, the government-endorsed quality scheme.

Transpact offers fixed fees per party based on transaction size, with additional costs for arbitration. Full pricing details and terms can be found on Transpact’s website.*

Is an escrow account right for you?

Whether escrow suits your business depends on your payment model, job size, and risk tolerance. 

If you already charge customers upfront and they’re comfortable with it, you may not need an escrow, but offering it could make you more appealing than competitors.

On the other hand, if you take payment at the end of a job, customers might resist paying into escrow upfront. However, if you've experienced non-payment issues before, escrow could offer valuable protection.

*Transpact and Which? are not affiliated; the service linked to is provided by Transpact (not Which?) and any contract is between you and Transpact.