What is escrow and why is it important?

Whether you are a software vendor or user, understanding how escrow works is crucial in ensuring the continuity and stability of your mission-critical software. This page is designed to give you a clear and in-depth understanding of what an escrow arrangement entails, why it is essential for your business, and how it works. We cover everything from the basics to the specific benefits for both providers and users, and answer any questions you may have about this important service.

What exactly is an escrow arrangement?

There are several escrow arrangements. The escrow arrangements menu contains the specifications of the various arrangements. Briefly, an escrow arrangement is an agreement whereby a third party, the escrow agent, takes custody of essential software source codes, data and/or related documentation. This arrangement is used in the context of software and technology products.

What does it entail?

In an escrow arrangement, a software vendor deposits the source code of its software or relevant data with a trusted third party, the escrow agent. This ensures that software users (the vendor’s customers, also known as beneficiaries) can access these critical components in the event that the vendor is no longer able to provide the necessary support and updates. This can happen as a result of bankruptcy, business closure, or other disruptive events.

What is the role of an escrow agent?

The escrow agent, such as Escrow Alliance, acts as an independent and trusted intermediary that protects the interests of both the software vendor and the user. The role of escrow agent includes keeping the deposited materials secure and confidential, ensuring the integrity and accessibility of the information, and releasing it to the user under the agreed upon terms of the escrow agreement. The escrow agent is responsible for adhering to strict procedures, including verifications, to ensure the accuracy and security of the stored data and source codes. For example, Escrow Alliance is ISO-certified, which provides an extra level of trust and quality assurance.

Why is an escrow arrangement important?

An escrow arrangement is essential for both software vendors and users because it provides an extra layer of security and protection in the dynamic and sometimes unpredictable world of technology. The benefits to your business are multifaceted and have a direct impact on the stability and continuity of your business processes.

  1. Security and continuity: For software users, an escrow arrangement ensures that business-critical software continues to function even if the software vendor goes out of business, ceases operations, or discontinues support for other reasons. This ensures that your business can continue to operate uninterrupted without interruptions that could result from supplier problems.

  2. Risk management: An escrow arrangement is part of a broad strategy to mitigate risk. It helps manage the risk of losing access to essential software and its support. This is especially important for companies that rely on specialized software for their operations.

  3. Compliance: For some companies, compliance with certain regulations or internal policies may require that mission-critical systems be operational at all times. An escrow arrangement helps meet these compliance requirements by providing a plan for contingencies.

  4. Buyer confidence: For software vendors, offering an escrow arrangement can strengthen customer confidence in their products. Customers know there is a plan in place in case something goes wrong, which builds confidence in the supplier and its products.

  5. Contractual obligations: In some cases, it may be a contractual requirement of customers that an escrow arrangement be part of the terms of delivery. Having such an arrangement can strengthen a software vendor’s negotiating position and open up new business opportunities.

Who is an escrow arrangement for?

A software escrow arrangement is relevant to the various parties involved in the use and maintenance of software. Here are the key stakeholders:

Relevance to both supplier and user:

  • Software vendors: It provides reassurance to customers about software continuity even if the vendor goes out of business or is unable to continue support. It can serve as a confidence signal when entering into business agreements because it shows that the supplier is willing to release source code or user rights under certain circumstances.
  • Customers/users: It gives users the assurance that they have access to the source code of the software or they get the assurance that a SaaS platform will continue to run when the vendor is no longer able to provide the support. Generally, users rely on complex and sometimes customized software solutions. An escrow arrangement ensures, the continuity of the software if the supplier goes away and specific agreements have been made about. This may include giving users access to source code and essential documentation. Or that a SaaS platform be continued under certain conditions.

In short, a software escrow arrangement is relevant to any situation where continuity of software use and support is critical, and where the risk of unavailability or loss of support must be managed.

How do software supplier and software users benefit?

  • Software supplier: For software suppliers, an escrow arrangement serves as a powerful selling point. It reinforces trust with current and potential customers by showing that the supplier is serious about the continuity and stability of their products.

  • Software users: Users, or the customers of software vendors, are assured by an escrow arrangement that they will continue to have access to essential software even if the supplier goes out of business, goes out of business, or ends support for the product. This provides a safety net and ensures that critical business processes can continue in the event of unexpected situations.

What happens if a software supplier goes out of business or quits?

If a software supplier goes out of business or quits, an escrow agreement with Escrow Alliance provides crucial protection for users of the software. Several points are important here;

How is access to the software or data guaranteed?

  1. Secure storage: When an escrow agreement is in place with Escrow Alliance, the software source code or essential data is securely stored with Escrow Alliance. This storage follows strict procedures in accordance with ISO 9001 and ISO 27001 certifications, ensuring reliable and secure storage.

  2. Activation of the escrow release: In the event that the software supplier can no longer or will no longer support, due to, for example, company closure or bankruptcy, the escrow release procedure is activated. Upon release, the source code or data held in escrow is made available to the user. If you are using a SaaS application, there are specific agreements in place to keep the platform running.

  3. Continuity of business processes: By releasing the source code or data, the user can continue to use and/or maintain the software, ensuring the continuity of business-critical processes. This is especially important if you depend on this software for day-to-day operations.

What are my rights and guarantees as a user?

  1. Access Rights: As a user, you have the right to access the source code or essential data in accordance with the terms of the escrow agreement. This agreement specifies the circumstances under which the user will have access.

  2. Guarantees: As a user, you are guaranteed a backup plan in case the software vendor can no longer provide the necessary support. This assures you as a user of continuity and stability even in unforeseen circumstances.

  3. Legal protection: The escrow agreement provides legal protection and clarity on what happens in the event of bankruptcy or termination of the supplier. This gives you as a user a stronger position and more security.

What is the most suitable solution
for your situation?

Find out about the possibilities, we are happy to think along with you.