Owning an online business comes with several responsibilities. You deal with multiple complex transactions on an everyday basis where your money moves across different networks- right from vendors to customers to partners. But do you have the right kind of account that compliments your business and transactions?
Everyone has heard about Nodal, Escrow and Current account a lot of times, but how well acquainted are we with their meaning and basic functioning? If you are one of those who still scratch their head and are unable to decide which one is best for you, here’s a simplified guide on the basic differentiation between them and which one is perfect for your business.
Nodal Account holds the purpose of acting as an intermediary between the customers and sellers. An intermediary business collects the payments from the customers on behalf of the vendors and enforces ‘trust factor’ safeguarding the interests of customers and vendors so that the payments are collected, processed and settlement is done to the relevant parties without any hassle or delay.
The striking feature of an e-commerce platform is a comprehensive chain of interactions between various unknown parties comprising of vendors, customers, payment gateway, etc. processing through one nodal account which fulfils the basic aim of collating temporary funds and dispending them to the relevant parties when required.
Features of a Nodal Account:
- Holds third-party amounts for settlements.
- Acts as a temporary vault for storing and disbursing funds to the designated parties.
- Cash cannot be withdrawn from a Nodal Account.
An escrow account acts as a temporary vault entrusted to a third-party on behalf of two transacting parties that are bound by a contract. The third-party holds the funds until clear instructions for disbursement of the same has been communicated or as per the scheduled timeline. The sole purpose behind an escrow arrangement is to safeguard the interests of both seller and buyer, by assigning a mutual party that would take care of the payment processing once the goods or services have been delivered.
Simply put, if you sell overseas, you need an assurance that you will receive your payment as your buyer receives his product. Similarly, your buyer would also want to make the payment on the assurance that the goods that he had placed order for, would reach him. To maintain trust and security between the two, an escrow account is maintained, satisfying both the parties and releasing the payment to the seller on the accomplishment of an order.
Features of an Escrow Account:
- A temporary account operating till the completion of a scheduled transaction process.
- Reduces risk and enhances security when the buyer is completely unknown to the seller.
- Payouts are transparent and secured, help keeping a better record of transactions, easing the auditing process.
Current accounts are most commonly used and have almost become a de-facto account for all kinds of businesses, irrespective of the size or type. Almost every business holds a current account. The functionality of a current account doesn’t differ much from a regular savings account except for the part that most current accounts are liquid and therefore, do not earn interest or hold an upper limit on the number of transactions that can be made in one day.
Features of a Current Account:
- For easy business transactions.
- No limit on the number of transactions for small businesses.
- Businesses can overdraw the balance to meet short-term fund requirements.
Having the right kind of account for your business could help you manage your finances in an exceptional way. We hope that this post has answered most of your questions and has provided you with some clarity on which account is most suitable for your business as per its type and transaction volume. If you still have further questions, write to us. We will be more than happy to help you.