Escrow · conditional payments
Money that waits for proof
In an escrow arrangement, neither side holds the money while the deal is under way. A neutral party does, and releases it only when the evidence the agreement names has arrived. The whole arrangement is only as good as how those conditions are written.
Released to seller ₹2,40,000Still held ₹9,60,000
1 · On signing (20%)₹2,40,000 Released
Signed purchase order (received)
2 · On delivery (50%)₹6,00,000 Evidence pending
Delivery receipt (received)Inspection report (received)Buyer's acceptance, or 7 days without objection (not yet received)
3 · On installation (30%)₹3,60,000 Held
Installation certificate (not yet received)Buyer's sign-off (not yet received)
How escrow works
Escrow solves a trust problem. A buyer doesn't want to pay before receiving what they bought; a seller doesn't want to deliver before knowing they'll be paid. With escrow, the buyer pays into an account held by a third party, the seller can see the money is there, and the agreement decides when it moves.
The escrow agent follows the agreement, not either party. It releases money when the named evidence or instruction arrives, returns it if the deal falls through on the agreed terms, and otherwise holds it.
Buyer
Pays the agreed amount into escrow, and later confirms or objects.
Seller
Delivers, then provides the evidence that releases payment.
Escrow agent
Commonly a bank or trustee company; holds the money and acts only on the agreement's instructions.
Escrow agreement
The document all three sign: amounts, conditions, evidence, timelines, disputes, fees.
Not every “escrow account” is the same thing
The word is used for arrangements with quite different purposes. Knowing which one someone means avoids a lot of confusion, especially in payments.
| Kind | Purpose | Set by |
|---|---|---|
| Deal escrow | Holds one transaction's money until its conditions are met | An agreement between the parties and the agent |
| Payment aggregator escrow | Holds money a payment aggregator has collected for merchants, before settlement | RBI's rules for payment aggregators |
| Sector-specific accounts | Some laws require money for particular purposes to be kept in separate or designated accounts | The law for that sector |
RBI's Master Direction on Regulation of Payment Aggregators (15 Sep 2025) requires a non-bank payment aggregator to maintain the funds collected on behalf of its merchants in a separate escrow account with a scheduled commercial bank in India. Which sector rules apply to you is a legal question.
When escrow is worth the effort
Escrow adds an agreement, a third party, fees and some time. It pays for itself when the amount is large, the parties are new to each other, and there's a clear, checkable moment when the seller has done what they promised.
For small, routine purchases between parties who trade regularly, ordinary payment terms work better. Escrow is for the deals where one side would otherwise walk away.
| Situation | What's held | Released on |
|---|---|---|
| Buying equipment from a new supplier | The purchase price | Delivery, inspection and installation |
| Services in stages | Each stage's fee | Sign-off of each deliverable |
| Buying a business or shares | Part of the price, as a holdback | Warranties holding for an agreed period |
| High-value goods between strangers | The price | The buyer's acceptance, or a quiet period without objection |
| Settlement of a dispute | The settlement amount | Agreed steps completed by both sides |
Writing release conditions that work
Most escrow problems are condition problems. A condition the agent can't check, or that either side can argue about, turns escrow into a stalemate. Good conditions share four features.
Objective
Something a third party can confirm without judging quality: a document, a certificate, a signature.
Evidenced
The agreement names the exact document and who issues it.
Time-bound
What happens if nothing arrives by a date: release, refund, or extension.
Defaulted
If the buyer stays silent, is that acceptance? Say so.
| Weak | Stronger |
|---|---|
| When the goods are delivered | On receipt of a delivery note signed by the buyer's named representative |
| When the buyer is satisfied | On the buyer's written acceptance, or 7 days after delivery with no written objection |
| When the work is complete | On a completion certificate from the named independent engineer |
| If there's a problem, the money goes back | If no delivery note is received by 30 June, refund to the buyer unless both parties agree in writing to extend |
Example wording to show the idea, not drafting advice. Have the agreement drafted or reviewed by a lawyer.
What the escrow agreement covers
Parties and roles
Who is buyer, seller and agent, and who may give instructions for each.
Funding
How much, by when, from which account, and what happens if it isn't funded.
Conditions and evidence
Each release trigger and the exact documents or instructions that prove it.
Release and refund
Where money goes in each case, and the account details it goes to.
Disputes
What freezes the funds, how disputes are resolved, and how the agent is told the outcome.
Fees, interest and end
Who pays the agent, who gets any interest, and how the arrangement closes.
Milestones and partial releases
Large deals rarely finish in one step. Splitting the amount into milestones, each with its own condition, keeps both sides moving: the seller is paid as they progress, and the buyer never has more at risk than the next stage.
Keep milestone amounts roughly in line with the seller's costs for each stage, so neither side ends up financing the other. And make sure the milestones add up to the full amount, with nothing left undefined at the end.
- 1Fund the whole amountOr each stage before it begins, if the agreement allows.
- 2Release stage by stageEach on its own evidence.
- 3Hold back a final partUntil installation, acceptance or a warranty period.
- 4Close outFinal release or refund, a closing statement, account closed.
The machine purchase, step by step
Here is how the deal at the top of this page might run in practice: a manufacturer buying a ₹12,00,000 machine from a supplier it hasn't used before. Each row is a moment where money moves, or deliberately doesn't.
| When | What happens | Money |
|---|---|---|
| Day 0 | Buyer, supplier and agent sign the escrow agreement; agent completes its checks on both | Nothing yet |
| Day 2 | Buyer funds the escrow account | ₹12,00,000 held |
| Day 3 | Signed purchase order lodged with the agent | ₹2,40,000 released to supplier |
| Day 30 | Machine delivered; signed delivery note and inspector's report lodged | Still held: buyer's acceptance window running |
| Day 37 | Seven days pass without written objection | ₹6,00,000 released |
| Day 45 | Installation certificate and buyer sign-off lodged | ₹3,60,000 released; account closed |
Made-up deal and timings. The point is that every release is tied to a named document and a date.
Escrow for services and staged work
Services are harder than goods, because “done” is a judgement. A website, a design, a fit-out: the client can always find something to change. Escrow for services works when each stage has a written deliverable and an acceptance window that ends on its own.
The usual pattern is a short acceptance period after each delivery. If the client accepts or stays silent, the stage releases; if they object in writing with reasons, the stage is reworked or goes to the dispute process. Without that clock, a single unhappy email can freeze payment indefinitely.
Deliverables written down. What each stage produces, in enough detail to check.
Acceptance window. A fixed number of days to accept or object.
Objections in writing, with reasons. So rework has a scope.
A limit on rework rounds. After which the dispute process applies.
Setting one up: what the agent will ask for
An escrow agent holds money for people it has to identify, under a contract it has to understand. Expect it to verify every party and read the deal before accepting funds. Time and cost depend on the agent and the size of the deal, so ask early.
Identity of every party
The agent's own checks on buyer, seller and their signatories.
The underlying contract
The purchase or service agreement the escrow supports.
The escrow agreement
Often on the agent's template, adapted to the deal.
Bank accounts for release
Verified accounts for each possible payee.
Fees are commonly a set-up charge plus an annual or per-transaction fee, and vary by agent. Agree in the escrow agreement who pays them.
When the parties disagree
Disputes are where escrow earns its keep: the money is safe while the parties argue, rather than already sitting with one of them. But the agent is usually not a judge. It acts on a joint instruction from both sides or on a binding decision from the process the agreement names.
That makes the dispute clause as important as the conditions. Name the process (for example, negotiation, then mediation, then arbitration), the timelines, and what happens to the money if the process runs long.
Expect the agent to hold funds, not to rule on quality or performance. If you want someone to judge, name an expert or arbitrator in the agreement.
Escrow compared with other ways to share risk
Escrow is one of several tools for deals where neither side wants to go first. The others shift risk in different ways and suit different deals. Choosing between them is usually a question of size, how well the parties know each other, and whether the deal crosses borders.
| Tool | How it works | Risk sits with | Suits |
|---|---|---|---|
| Advance payment | Buyer pays before delivery | Buyer | Trusted suppliers, small amounts |
| Credit terms | Seller delivers, buyer pays later | Seller | Established relationships |
| Milestone invoicing | Seller invoices each stage as it's done | Split, stage by stage | Projects with clear stages |
| Escrow | A neutral party holds the money against conditions | Shared; money safe while conditions are checked | New relationships, larger one-off deals |
| Bank guarantee | A bank promises to pay if one party fails its obligation | The bank, backed by its customer | Performance or advance-payment security |
| Letter of credit | The buyer's bank pays on presentation of specified documents | The banks, against documents | Trade, especially across borders |
Descriptions are simplified; bank guarantees and letters of credit have their own terms and rules. Ask your bank which fits.
Closing the arrangement cleanly
An escrow isn't finished when the last payment goes out. The agent should confirm every release and refund in writing, account for any interest and its own fees, and close the account, and each party should reconcile what it paid or received against the agreement.
Keep the full file (the agreement, every document lodged, every instruction and the closing statement) for as long as your records policy and any tax or legal requirements say. If anything about the deal is questioned later, that file is the history.
Closing statement. Every amount in and out, with dates.
Interest and fees accounted for. As the agreement set out.
Account closed. Confirmed in writing by the agent.
File kept. Agreement, evidence, instructions, statement.
What escrow can't do
It can't guarantee the outcome. It controls when money moves, not whether the goods are good or the work is done well.
It can't fix vague conditions. If the agreement can't be applied, the money stays stuck until the parties agree.
It can't replace due diligence. Checking who you're dealing with still matters. See KYB.
It can't make an unlawful deal lawful. Escrow doesn't change what a transaction is, or the rules that apply to it.
Checking a counterparty: KYB guide. Paying sellers on a platform: marketplace payments.
Where Peneu fits
This page doesn't say Peneu acts as an escrow agent or holds money in escrow, and no escrow partner is named. Whether Peneu offers an escrow arrangement through a regulated partner, which conditions and releases it supports, and who holds the funds, is confirmed during onboarding.
Escrow questions
What is an escrow arrangement?
An arrangement in which money is held by a neutral third party, the escrow agent, and released to one side or returned to the other only when conditions written into an agreement are met. It lets two parties who don't yet trust each other go ahead with a deal.
Who can act as an escrow agent?
Commonly a bank or a trustee company, holding the money in a designated account and acting only on the instructions the escrow agreement sets out. Who is suitable, and whether any licence is involved, depends on the transaction; take legal advice for significant deals.
Does escrow guarantee the deal?
No. Escrow makes sure money isn't released until the agreed conditions are evidenced, and isn't released to the wrong party. It doesn't check the quality of goods unless the conditions require an inspection, and it can't fix a contract whose conditions were badly written.
What's the difference between escrow and a payment aggregator's escrow account?
Deal escrow holds money for one transaction under conditions the parties agree. A payment aggregator's escrow account is a regulatory requirement: RBI's Master Direction on payment aggregators (15 Sep 2025) requires a non-bank payment aggregator to keep the funds it collects for its merchants in a separate escrow account with a scheduled commercial bank in India. The two serve different purposes.
Who decides if a condition has been met?
Whatever the agreement says. Good agreements name objective evidence, such as a signed delivery receipt or an inspector's certificate, or a joint instruction from both parties. Escrow agents generally act on documents and instructions and don't judge disputes themselves.
What happens if the buyer and seller disagree?
The money usually stays where it is while they resolve it, through the dispute process the agreement names (negotiation, mediation, arbitration or the courts). The agent then releases according to a joint instruction or a binding decision.
Does money in escrow earn interest?
It can, if the agreement provides for it and the agent offers it. The agreement should say who gets any interest and who bears any tax on it.
How long can money stay in escrow?
As long as the agreement allows. Good agreements set an end date or a long-stop date, after which the money is released or refunded on stated terms, so funds can't sit indefinitely if one party stops responding.
Can escrow be used for payments on a marketplace?
Marketplaces that hold buyers' money until delivery are dealing with regulated activity: how a platform may hold and settle funds depends on its model and RBI's rules. See the marketplace payments guide, and take legal advice before building it.
Does Peneu offer escrow?
This page doesn't say Peneu acts as an escrow agent or holds funds in escrow. Whether Peneu offers an escrow arrangement through a regulated partner, and on what terms, is confirmed during onboarding.
Official sources
- RBI — Master Direction on Regulation of Payment Aggregator (PA) (15 Sep 2025)Para 16a: a non-bank PA to maintain funds collected on behalf of its merchants in a separate escrow account with any scheduled commercial bank in India.
Last reviewed . Examples, amounts and screens marked illustrative are not Peneu figures.