{"id":1082,"date":"2022-11-10T17:04:48","date_gmt":"2022-11-10T11:34:48","guid":{"rendered":"https:\/\/rzpwp.blog\/?p=1082"},"modified":"2025-02-26T15:33:06","modified_gmt":"2025-02-26T10:03:06","slug":"nodal-escrow-current-account","status":"publish","type":"post","link":"https:\/\/razorpay.com\/blog\/business-banking\/nodal-escrow-current-account\/","title":{"rendered":"Nodal vs Escrow vs Current Account &#8211; What Does Your Business Need?"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Planning on starting an online business? Confused if you should open a Nodal, Escrow, or Current account? We\u2019ll help you understand what each of these terms means and which accounts suit your business type.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Before that, let\u2019s take a step back and understand how it all started. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">If you were running a business two decades back, everything &#8211; from receiving payments from customers to making vendor payments would mostly be done through cash or bank cheques. Opening and managing a bank account was tedious and time-consuming.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Then came the internet era. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">The physical barrier of reaching only a small set of customers through a physical store is completely offset in the online world.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Everything from hailing a cab to buying groceries to even attending an educational course can be purchased and <\/span><a href=\"https:\/\/razorpay.com\/blog\/how-startups-can-accept-online-payments-in-india\/\"><span style=\"font-weight: 400;\">paid for online<\/span><\/a><span style=\"font-weight: 400;\">. This convenience, however, requires sound and efficient operations in the backend. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Several entities from sellers to vendors to logistics partners and <a href=\"https:\/\/razorpay.com\/blog\/payment-processor\/\">payment processors<\/a> have to work together. And, money has to be moved across from the customers to all these parties in order to ensure success of a business. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Nodal and Escrow are special kinds of bank accounts that have been specifically built to handle the complex money transfers that online commerce players face. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">So, let\u2019s understand how these accounts work.<\/span><\/p>\n<h2><b>Nodal Account<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">By definition, nodal accounts or nodal bank accounts are special internal bank accounts that are mandated by the RBI for businesses that are intermediaries, connecting customers to sellers. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">So, what really is an intermediary? <\/span><i><span style=\"font-weight: 400;\">Well, your online business would be an intermediary if:<\/span><\/i><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\">You <a href=\"https:\/\/razorpay.com\/blog\/how-to-collect-money-online\/\">collect money<\/a> online from customers on behalf of your vendors.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Where you are only sourcing the products and not actually manufacturing them.<\/span><\/li>\n<li><span style=\"font-weight: 400;\">Where you do not fully pay for the products or stock inventory of the products. <\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The striking feature of online commerce is the multi-layered interactions between several unknown parties &#8211; customers, vendors, <a href=\"https:\/\/razorpay.com\/payment-gateway\/\">payment gateway<\/a> etc. If payouts between these parties aren\u2019t down on time, it will lead to an erosion of trust.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The purpose of a nodal account is to cover for the \u2018<\/span><b><i>trust\u2019 <\/i><\/b><span style=\"font-weight: 400;\">factor. It safeguards the interests of customers and vendors so that payments are collected, processed and payouts are done to relevant vendors without undue delay. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">The transaction flow of a nodal account at a marketplace is illustrated below:<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-1085 size-large\" src=\"https:\/\/razorpay.com\/blog-content\/uploads\/2018\/10\/Nodal-1024x985.jpg\" alt=\"nodal-account\" width=\"770\" height=\"741\" srcset=\"https:\/\/blog.razorpay.in\/wp-content\/uploads\/2018\/10\/Nodal-1024x985.jpg 1024w, https:\/\/blog.razorpay.in\/wp-content\/uploads\/2018\/10\/Nodal-300x289.jpg 300w, https:\/\/blog.razorpay.in\/wp-content\/uploads\/2018\/10\/Nodal-768x739.jpg 768w, https:\/\/blog.razorpay.in\/wp-content\/uploads\/2018\/10\/Nodal.jpg 1079w\" sizes=\"auto, (max-width: 770px) 100vw, 770px\" \/><\/p>\n<p><span style=\"font-weight: 400;\">Essentially, the nodal account acts as a temporary vault to store and distribute the money to relevant parties. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Payouts are not only limited to sellers\/vendors. But, they also include other entities like transportation fees to logistics partners, commissions to payment processors and charges to intermediaries etc.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">There are some important terms to understand in relation to nodal accounts. We\u2019ve explained them below:<\/span><\/p>\n<p><em><b>Intermediary<\/b><span style=\"font-weight: 400;\"> &#8211; An intermediary is an entity that collects money from customers online and then transfers it to the sellers and vendors involved. Online aggregators and marketplaces are good examples of intermediaries. Exceptions to this are businesses that facilitate the delivery of products or services immediately, like the sale of movie tickets. <\/span><\/em><\/p>\n<p><em><b>Settlement Cycle &#8211; <\/b><span style=\"font-weight: 400;\">As defined by the RBI, the settlement cycle for payments channelled through nodal accounts is T+3 days. T is defined as the completion of the transaction, where the customer has received the product or service as defined by the intermediary.<\/span><\/em><\/p>\n<p><em><b>Debits &#8211; <\/b><span style=\"font-weight: 400;\">Debits can be made to bank accounts of vendors, sellers, other partners based on agreed terms and conditions. This also includes refunds for disputed transactions. The business can only raise a request for debit, the final approval for debit has to come from the bank. <\/span><\/em><\/p>\n<p><em><b>Credits &#8211; <\/b><span style=\"font-weight: 400;\">Credits can be made into the nodal account based on pre-determined terms and conditions. <\/span><\/em><\/p>\n<h2><b>Opening a Nodal Account<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">A business can request a nodal account from any bank approved by the RBI. Different banks impose different criteria to approve nodal account requests. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Qualification criteria might range anywhere from the amount of capital investment to business reputation to transaction volumes to be processed. <\/span><span style=\"font-weight: 400;\">Businesses will also be required to submit all <a href=\"https:\/\/razorpay.com\/docs\/payments\/kyc\/\">KYC documents<\/a> and agree to strict compliance requirements through concurrent audits as mandated by the <\/span><a href=\"https:\/\/rbidocs.rbi.org.in\/rdocs\/Publications\/PDFs\/86706.pdf\" rel=\"nofollow noopener\" target=\"_blank\"><span style=\"font-weight: 400;\">Payments and Settlements Systems Act, 2007<\/span><\/a><span style=\"font-weight: 400;\">. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Opening and maintaining a nodal account requires significant effort from businesses. Integration with the bank&#8217;s systems could be tedious and host to host <a href=\"https:\/\/razorpay.com\/docs\/server-integration\/\">server integration<\/a> not always feasible (hence transaction details have to be manually uploaded for the bank to then approve)<\/span><\/p>\n<h2><b>Escrow Account<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">Have you heard that phrase <\/span><i><span style=\"font-weight: 400;\">\u2018Escrow\u2019<\/span><\/i><span style=\"font-weight: 400;\"> long before the internet age?<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In fact, it is believed that escrow was used as early as the Middle Ages. \u2018<\/span><i><span style=\"font-weight: 400;\">Escroe\u2019<\/span><\/i><span style=\"font-weight: 400;\"> meant a small piece of paper, scrap or parchment that acted as a deposit of trust or security and was held by third parties until a future condition was satisfied.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Even today, in online commerce, the underlying philosophy of an escrow account is to ensure trust and security. An escrow account is a temporary vault of money held by a trusted third party on behalf of two transacting parties that are bound by a contract. Generally, an escrow account is used for the following circumstances:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">When the buyer and seller haven\u2019t met before<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">When the contract is complex and long-term<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">When the contract has a high value and payment<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Where payment has to be made in accordance with the stage of completion of the project (Eg. a real estate purchase)<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">A good example where escrow accounts are commonly used is the real estate industry. Let\u2019s take the case of a house, that is being built by a real estate developer. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">A buyer who is interested in purchasing the house can use an escrow account to park the money (for the total value of the house) and make payments in parts, based on the level of completion, as outlined in the terms of the purchase contract. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">This way, the buyer is assured that there is no loss of money and the seller is assured of the buyer&#8217;s ability to pay in full.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Escrow accounts are also used in online commerce. Escrow mitigates the potential risk involved when the buyer is completely unknown to the seller. For instance, if you were buying second-hand furniture from an unknown person, an escrow account is recommended. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">The escrow acts as buyer protection and safeguards you from losing money over unsatisfactory, damaged or undelivered products or services. Hence, it also reduces the likelihood of disputes or <\/span><a href=\"https:\/\/razorpay.com\/blog\/best-practices-for-online-businesses-to-avoid-chargebacks\/\"><span style=\"font-weight: 400;\">chargebacks<\/span><\/a><span style=\"font-weight: 400;\"> for the seller. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">This is how an escrow transaction flow in e-commerce would look like.<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-3655 size-large\" src=\"https:\/\/razorpay.com\/blog-content\/uploads\/2018\/10\/Escrow-1-1024x628.png\" alt=\"escrow\" width=\"770\" height=\"472\" srcset=\"https:\/\/blog.razorpay.in\/wp-content\/uploads\/2018\/10\/Escrow-1-1024x628.png 1024w, https:\/\/blog.razorpay.in\/wp-content\/uploads\/2018\/10\/Escrow-1-300x184.png 300w, https:\/\/blog.razorpay.in\/wp-content\/uploads\/2018\/10\/Escrow-1-768x471.png 768w, https:\/\/blog.razorpay.in\/wp-content\/uploads\/2018\/10\/Escrow-1.png 1257w\" sizes=\"auto, (max-width: 770px) 100vw, 770px\" \/><\/p>\n<p><span style=\"font-weight: 400;\">Generally, banks and financial service companies serve as escrow agents and provide escrow services for a fee. Make sure to go through the terms and conditions detailed by escrow agents before signing up with an escrow agent. <\/span><\/p>\n<h2><b>Current Account<\/b><\/h2>\n<p><span style=\"font-weight: 400;\">A current account is the most common account used by businesses. Current accounts are liquid accounts with no upper limit on the number of transactions (deposits, withdrawals, transfers, etc.) that can be done in a single day. <\/span><\/p>\n<p><span style=\"font-weight: 400;\"><a href=\"https:\/\/razorpay.com\/x\/current-accounts\/\">Current accounts<\/a> can be opened at all commercial banks and most banks support multi-location deposit and withdrawal facilities, to suit the varying needs of a business. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Due to the liquid nature of the account, most current accounts do not earn interest. Current accounts support both online and offline\/cash transactions &#8211; so whether it is depositing a customer\u2019s <a href=\"https:\/\/razorpay.com\/learn\/what-is-cheque\/\">cheque<\/a> at a bank or transferring staff salary online, a current account will be able to fulfill the basic needs of running a business. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Current accounts have become the de facto account for businesses to have, regardless of size, nature or type of business. So, every business by default would need a current account. The question really is &#8211; <\/span><i><span style=\"font-weight: 400;\">does your business need a nodal or escrow account in addition to a current account? So, to recapitulate, your business would require a nodal or escrow account if:<\/span><\/i><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><em><span style=\"font-weight: 400;\">You are a business <\/span><b>intermediary<\/b><span style=\"font-weight: 400;\"> (aggregator, marketplace etc) &#8211; bringing buyers and sellers on a single platform.<\/span><\/em><\/li>\n<\/ul>\n<ul>\n<li style=\"font-weight: 400;\"><em><span style=\"font-weight: 400;\">The nature of your business involves transactions between two or more unknown parties.<\/span><\/em><\/li>\n<\/ul>\n<ul>\n<li style=\"font-weight: 400;\"><em><span style=\"font-weight: 400;\">Your business involves signing contracts that are complicated, long-term or have a high transaction high value.<\/span><\/em><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Opening a business begins with choosing the right business type and ends with choosing the right bank for your business.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Business Banking can shape the financial journey of a business.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Smart payouts, seamless Vendor payments, automated payroll and many more such features have been taking the Fintech space by storm.<\/span><\/p>\n<p>&nbsp;<\/p>\n<div style=\"text-align: center;\"><a style=\"border-radius: 3px; background: #528FF0; padding: 15px; font-weight: 600; cursor: pointer; text-decoration: none; color: white;\" href=\"https:\/\/x.razorpay.com\/auth\/signup\/?r=blog_cta_business_banking_nodal_escrow_current_account&amp;utm_source=blog&amp;utm_medium=cta\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">Explore RazorpayX-powered Current Account<\/a><\/div>\n<p><span style=\"font-weight: 400;\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">RazorpayX is a full-stack banking suite that supercharges the current accounts<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Banking which Provides end-to-end automation with powerful features like Automated Accounting, OTP management, Maker-Checker Flows,<\/span><\/li>\n<\/ul>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><a href=\"https:\/\/razorpay.com\/x\/corporate-cards\/\"><span style=\"font-weight: 400;\">Corporate Cards<\/span><\/a><span style=\"font-weight: 400;\"> with 20X higher limits<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Automated<\/span><a href=\"https:\/\/razorpay.com\/x\/vendor-payments\/\"> <span style=\"font-weight: 400;\">Vendor Payments<\/span><\/a><\/li>\n<li aria-level=\"1\">Forex Services<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><a href=\"https:\/\/razorpay.com\/payroll\/\"><span style=\"font-weight: 400;\">Payroll<\/span><\/a><span style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"> &#8211; India\u2019s ONLY payroll with Full compliance automation, Employee Insurance management and TDS filing)<br \/>\n<\/span><\/span><\/p>\n<div style=\"text-align: center;\"><a style=\"border-radius: 3px; background: #528FF0; padding: 15px; font-weight: 600; cursor: pointer; text-decoration: none; color: white;\" href=\"https:\/\/x.razorpay.com\/auth\/signup\/?r=blog_cta_business_banking_nodal_escrow_current_account&amp;utm_source=blog&amp;utm_medium=cta\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">Explore RazorpayX<\/a><\/div>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">With platforms like RazorpayX , you can supercharge your finances.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Are there any specific topics around managing your business finances, payments, and cash flows that you would like to read about? Let us know in the comments below?<\/span><\/p>\n<h2>Frequently Asked Questions<\/h2>\n<div id=\"rank-math-rich-snippet-wrapper\"><div id=\"rank-math-faq\" class=\"rank-math-block\">\n<div class=\"rank-math-list \">\n<div id=\"faq-1\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \">What is a Nodal Account?<\/h3>\n<div class=\"rank-math-answer \">\n\n<p>A nodal Account is\u00a0a type of current account that is used to hold the funds on behalf of customers &amp; vendors (payouts) to safeguard the interests of the two parties.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-2\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \">What is an Escrow Account?<\/h3>\n<div class=\"rank-math-answer \">\n\n<p>An escrow account is\u00a0a third-party account where funds are kept before they are transferred to the receiving party.<\/p>\n\n<\/div>\n<\/div>\n<div id=\"faq-3\" class=\"rank-math-list-item\">\n<h3 class=\"rank-math-question \">What is a Current Account?<\/h3>\n<div class=\"rank-math-answer \">\n\n<p>A current account is maintained by individuals who carry out a significantly higher number of transactions with banks on a regular basis. This type of account is mainly used by businesses.<\/p>\n\n<\/div>\n<\/div>\n<\/div>\n<\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Are you an online business? Confused if you should open a Nodal, Escrow or Current account? Read this post to understand what best suits your business.<\/p>\n","protected":false},"author":102,"featured_media":1084,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"footnotes":""},"categories":[27],"tags":[43,51],"class_list":{"0":"post-1082","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business-banking","8":"tag-online-commerce","9":"tag-payments"},"_links":{"self":[{"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/posts\/1082","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/users\/102"}],"replies":[{"embeddable":true,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/comments?post=1082"}],"version-history":[{"count":4,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/posts\/1082\/revisions"}],"predecessor-version":[{"id":20995,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/posts\/1082\/revisions\/20995"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/media\/1084"}],"wp:attachment":[{"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/media?parent=1082"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/categories?post=1082"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/razorpay.com\/blog\/wp-json\/wp\/v2\/tags?post=1082"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}