{"id":10956,"date":"2019-09-06T23:13:27","date_gmt":"2019-09-06T17:43:27","guid":{"rendered":"https:\/\/www.instamojo.com\/blog\/?p=10956"},"modified":"2023-10-20T17:02:49","modified_gmt":"2023-10-20T11:32:49","slug":"difference-nodal-escrow-and-current-account-for-small-businesses","status":"publish","type":"post","link":"https:\/\/www.instamojo.com\/blog\/difference-nodal-escrow-and-current-account-for-small-businesses\/","title":{"rendered":"Key Differences Between Nodal, Escrow and Current Account for Small Businesses"},"content":{"rendered":"

Businesses and personal accounts differ. This is why you need to know whether you need a\u00a0 nodal, escrow and current account for your small business.\u00a0<\/span><\/p>\n

The internet era has shifted businesses online. For online small businesses running an e-commerce platform, money moves across different networks. From customers to vendors, partners etc, e-commerce payments are a complex process.\u00a0<\/span><\/p>\n

This is why your business will need a nodal, escrow or current account.\u00a0<\/span><\/p>\n

A nodal, escrow and current account help businesses handle the complex payments that online businesses take care of. Nodal and escrow accounts are used to hold third-party amounts for settlements.<\/span><\/p>\n

What is nodal account?\u00a0<\/strong><\/h2>\n

A Nodal account is a special purpose account, mandated by the Reserve Bank of India, used by businesses that act as intermediaries. An intermediary business is one that collects money online from customers on behalf of the vendors.<\/span><\/p>\n

The qualification criteria can vary quite a bit, covering factors like the amount of money you invest, your business’s reputation, and how many transactions you plan to handle.<\/p>\n

You’ll also need to provide all the necessary Know Your Customer (KYC) documents and commit to following strict compliance rules, including regular audits as required by the Payments and Settlements Systems Act of 2007<\/a>.<\/p>\n

In the context of nodal accounts in India, here are the important terms to understand:<\/p>\n

Intermediary<\/strong><\/h3>\n

An intermediary is a financial institution or entity that acts as an intermediary between multiple parties, facilitating the flow of funds and ensuring compliance.<\/p>\n

Intermediaries in India may include payment aggregators, payment gateway providers, and other financial intermediaries.<\/p>\n

They often use nodal accounts to manage and disburse funds to various beneficiaries or merchants.<\/p>\n

Settlement cycle<\/strong><\/h3>\n

The settlement cycle in the context of nodal accounts in India refers to the timeline for the settlement and clearance of financial transactions.<\/p>\n

The settlement cycle can vary depending on the specific use case and industry.<\/p>\n

For instance, in payment processing and electronic transactions, settlements are often done in near real-time or within a matter of days, while in other financial contexts, such as securities trading, it may follow a T+3 (transaction date plus three business days) settlement cycle.<\/p>\n

Debit<\/strong><\/h3>\n

Debit is associated with the movement of funds out of the account. Debits occur when funds are withdrawn, transferred, or disbursed from the nodal account to the intended beneficiaries or recipients.<\/p>\n

This can include various transactions like vendor payments, customer refunds, or settlements with merchants.<\/p>\n

Features of nodal account<\/strong><\/h3>\n