how a third party works
a third party may also refer to an entity that a company uses to mitigate risk for example small investment firms face difficulty entering the industry when large firms continue leading the competition one reason large firms grow more quickly is because they invest in middle and back office infrastructure to stay competitive many smaller firms outsource those functions as a method of gaining a greater share of the marketplace small firms save time and money by leveraging scalable infrastructure with variable costs for trade operations data storage disaster recovery and system integration and maintenance by outsourcing middle and back office solutions small firms take advantage of technology and processes for more efficient task completion maximum operating efficiency reduced operational risks decreased reliance on manual processes and minimal errors operational costs are reduced compliance is enhanced and tax and investor reporting improve example of a third partya real estate escrow company acts as a third party to hold deeds documents and funds involved in completing real estate transactions the company deposits the funds in an account on behalf of the buyer and the seller the escrow officer follows the directions of the lender the buyer and the seller in an efficient manner when handling the funds and documentation involved in the sale for example the officer pays authorized bills and responds to the principals authorized requests although the escrow process follows a similar pattern for all homebuyers the details differ among properties and specific transactions the officer follows instructions when processing the escrow and upon meeting all written requirements delivers the documents and the funds to the appropriate parties before closing the escrow a company may hire a collection agency for securing payment of company debt company invoices or initial customer contracts typically state at which time a collection agency may be used for securing outstanding payments some businesses can carry debt for years whereas others expect payment within 90 days the schedule depends on the market and the company s relationship with the client 