Payment Custody refers to a payment arrangement in foreign trade transactions where the buyer entrusts the payment to a third-party escrow institution (such as a bank, payment platform, or trust company) for safekeeping. Once the seller fulfills the delivery obligations as stipulated in the contract, the escrow institution releases the funds to the seller. It is mainly used in scenarios where the buyer and seller lack mutual trust, new customer development, large-value transactions, or customized product orders. Key considerations include: clearly defining the conditions for escrow release (e.g., copy of bill of lading, quality inspection report), the party bearing escrow fees, exchange rate fluctuation risks, and the qualifications of the escrow institution. The difference from a Letter of Credit (L/C) is that escrow is more flexible and does not rely on bank credit. Compared with Open Account (O/A), escrow provides better payment security for the seller. Compared with advance payment (T/T), escrow is safer for the buyer.
📝 Examples
1. We recommend using payment custody for this order. The buyer will first remit a 30% deposit and 70% balance into the escrow account, and the escrow party will release the funds after we submit the bill of lading and quality inspection certificate. (Note: Used for large orders from new customers to balance risks for both parties.)
2. Since the contract stipulates payment custody, the seller must upload a copy of the bill of lading to the escrow platform after shipment. Upon confirmation by the buyer, the escrow bank will release the payment within 3 working days. (Note: Clarifies the escrow release process to ensure the seller receives payment promptly.)
💡 Foreign Trade Tips
Foreign trade terms are the foundation of international business communication
Trade practices may vary slightly by country; pay attention when using them
When using terms in contracts, specify the applicable version (e.g., Incoterms 2020)
For unfamiliar terms, use GlobalSync's multilingual email helper to confirm with your partner