Escrow Is Essential for Business Continuity; Is Your Organization Prepared?

Escrow is essential for any company that relies on software, but it’s not the same as an SLA. So what exactly is escrow?
You’ve probably heard the term before. But is your organization already making use of this crucial safeguard? At its core, escrow is a form of security held by a neutral third party.
It exists to address the conflicting interests between you, the client, and your software supplier.
After all, you want to keep using the software, even if your supplier unexpectedly goes out of business or can no longer support the product. Without an escrow arrangement in place, and if the supplier refuses or is unable to provide the software, you could be left with nothing.

Ensure a Guarantee for Your Software

That’s why it’s advisable to entrust the source code of software — like the example we mentioned — to an independent third party as a form of security.
This is also why, historically, such safeguards were often managed by notaries. You may be familiar with the term third-party escrow account: a bank account managed by a notary as a neutral third party, used to temporarily hold the purchase amount for real estate until the transaction is finalized.

Automation in the 1980s: The Foundation of Escrow

Of course, software is very different from something like a mortgage deed, where money is involved. The complexity of software — and especially its underlying source code — is on another level entirely.
For example, you want the escrowed material held by your trusted partner to reflect the current state of the software, updating it whenever changes are made.

The concept of escrow took shape in the early 1980s, as automation became more widespread.
Banks, for instance, began working with increasingly complex software systems. Back then, everything was still stored on floppy disks, a far cry from today’s fast-paced software environments, where updates happen daily, if not more often.

That’s why it’s critical for your escrow agent to be able to keep up with the evolving nature of your technology and to perform proper checks. Because if no one verifies what’s being deposited, there’s no guarantee that you’ll get what you actually need.

Every company is a tech company

Dependence on software has increased dramatically. Today, the entire business environment is built on digital infrastructure and the internet. In that sense, every company is now a tech company. The financial consequences of a software vendor going bankrupt can far exceed the initial cost of the software itself.
For example, you may lose access to critical customer data or your website may go offline, with serious business impact.

In some cases, the consequences are not just commercial, but societal as well. If information becomes unavailable, the effects can be severe. Consider hospitals that rely on software to function. If that software fails, surgeries and essential care may be delayed or canceled.

An SLA is not an escrow agreement

It likely won’t surprise you that we believe in building strong relationships with our clients — and with good reason: they entrust us with their crown jewels. When something goes wrong, they expect a solution. Some companies assume they’re covered simply because they have a Service Level Agreement (SLA) in place. But if the supplier disappears, they can no longer fulfill those obligations. That’s where the distinction becomes critical.

Think of an escrow agreement like a will: it defines what happens if the original party is no longer around.
Even though the circumstances may be unfortunate, this arrangement offers clarity and peace of mind for everyone involved.

Escrow as the Ultimate Risk Management Tool

Still unsure whether escrow is the right step for your organization? At the very least, make sure to familiarize yourself with the basics. Being well-informed puts you in a stronger position when entering discussions with your software provider. Ultimately, escrow is a key risk management instrument that helps safeguard your organization’s continuity.
Want to learn more? Feel free to contact us.