SaaS Escrow: The Safe Car That Brakes Automatically

In a previous blog we discussed the release conditions for software escrow, which enable the retrieval of source code. These release conditions are the most crucial clause in any software escrow agreement. But how does this work for SaaS escrow? Source code alone doesn’t help much here—it’s all about maintaining functionality so you can access your data. Let us explain the ins and outs.

Valid Release Conditions 

A release condition applies in the case of bankruptcy, but it can also be triggered earlier. This occurs if the company is already in trouble, even before bankruptcy is declared. For example, if the hosting provider’s invoices are consistently unpaid, that is a critical release condition. In short, these are situations that indicate the company is not in good financial health, and bankruptcy or payment suspension is imminent. That is the moment to act.

Clear Agreements with All Parties 

When we have a continuation agreement with the hosting provider, they are obligated—and encouraged—to contact us if the SaaS provider’s nonpayment becomes a significant issue. The agreement ensures that hosting services are not suspended but instead redirected to us, allowing continuity of service.

In practice, Escrow4all establishes a SaaS escrow agreement with the provider upfront. Once this agreement is signed, we make a separate arrangement with the hosting provider. We then draft an agreement detailing the terms and conditions outlined above.

This process effectively works as a two-part system. The goal is to prevent the SaaS chain, including the hosting provider, from halting services. We ensure the release conditions are aligned with continuing the production environment. In many cases where we intervene, the involved company has not yet declared bankruptcy but is on the verge of it.

Not an Airbag, but a Self-Braking Car

We often use the metaphor of an airbag to describe software escrow: it deploys after the impact, attempting to mitigate the damage once it’s already too late. By contrast, SaaS escrow is more like a self-braking car—it intervenes proactively, before the collision, aiming to prevent things from going wrong in the first place. In other words, it doesn’t passively address issues after the fact but actively works to prevent problems in advance.

Naturally, a robust escrow arrangement involves more than what’s described here. To simplify the concept, we often compare it to managing an office. You can pay the rent, but you also need a key (the escrow deposit). Then, you must have the alarm code, know where the light switches are, and understand where client information is stored so it can be properly maintained. That’s what we ensure, enabling uninterrupted operations.

The Importance of Release Conditions

Lastly, it’s worth noting that release conditions are significant and taken very seriously. There’s no room for arbitrary requests or sidelining the provider. Everything is outlined clearly in a contract that all parties agree to before the arrangement is finalized.

If you’d like to explore this complex and specialized subject further, let’s connect.