When investing in a business-critical software application—whether it’s a custom-built solution or a customized software or SaaS platform—it’s tempting to focus solely on functionality and go-live dates. However, protecting your investment with a software escrow agreement from day one is equally important.
Many software beneficiaries (end users, licensees, or investors) mistakenly assume that an escrow agreement should be set up at the end of development, once the software is complete or at the “go live” date. This can be a costly mistake. The reality is that escrow should be negotiated, signed, funded, and actively monitored from the outset of development—even if full deployment is a year or more away.
With Automated Escrow™, PRAXIS removes all administrative burdens from the depositor, making compliance effortless. And with Infinite Retention™, we store every version of the deposited materials—right from the first deposit—ensuring nothing is lost.
Additionally, requiring work-in-progress deposits throughout the project ensures that the escrow value matches the percentage of project completion. If 35% of the project is paid for, then 35% of the source code and documentation should be deposited. This protects your financial investment and ensures continuity if the vendor fails to complete the project.
Here’s why implementing and enforcing software escrow early is essential for your long-term protection.
1. Secure the Best Terms by Negotiating Escrow Before Development Begins
The best time to negotiate your software escrow agreement is before the development contract is signed. If you wait until the software is nearing completion, you may have:
- Less negotiating power—The software provider may resist adding escrow requirements after development is underway.
- Unclear deposit requirements—Without clearly defined milestones, you may only receive the final version of the software, missing valuable iterations along the way.
- No control over escrow compliance—If the agreement is an afterthought, enforcing deposit schedules and verification services becomes more difficult.
By integrating escrow into the initial contract, you can:
✔️ Require regular deposits of source code, documentation, and dependencies at every key milestone.
✔️ Ensure that the escrow release conditions align with your risk mitigation strategy.
✔️ Mandate verification testing to confirm that the deposited materials are complete and usable.
Additionally, requiring escrow from the beginning of the development, customization, and installation phase ensures that as money is spent, the escrow is on equal footing. If you have paid for 35% of the project, then approximately 35% of the source code, documentation, and deliverables should be deposited in escrow.
2. Require Deposits from Day One to Avoid Gaps in Protection
One of the biggest risks in software escrow is failing to require deposits until the final release. By then, if the vendor goes bankrupt, experiences staff turnover, or encounters other setbacks, you may have:
- No access to early versions of the source code for troubleshooting or compliance audits.
- No documentation on the software’s architecture, build processes, or dependencies.
- No ability to verify code quality until it’s too late to fix major issues.
To ensure full protection, the escrow agreement should require deposits from the start of development and at every major project milestone, including:
✅ Initial architecture and database schemas
✅ Early code commits and prototypes
✅ First beta release
✅ Final production-ready version
With Automated Escrow™, PRAXIS ensures that deposits are automatically captured through direct integrations with GitHub, Bitbucket, and other repositories. There is no administrative burden on the software provider, eliminating delays and compliance risks.
And with Infinite Retention™, PRAXIS will store every version of every deposit—forever. Unlike other escrow providers that delete outdated versions, we maintain a complete historical record, ensuring that no critical code or documentation is ever lost.
3. Protect Against Vendor Bankruptcy and Licensing Risks
If the software developer goes bankrupt before the software is complete, your escrow agreement must protect more than just the license to use the application. Many companies overlook the fact that:
⚠️ The license to use the source code—which may be separate from the standard end-user license – typically only exists in the escrow agreement. Ensuring that this license is in place throughout the life of the relationship is a critical component of the escrow agreement.
⚠️ Without the license to the Deposit Materials, even though you have the deposited source code in escrow, you may not have the legal right to use it.
To mitigate this risk, your escrow agreement should:
- Specify that the license to use the source code survives bankruptcy.
- Ensure that escrow release triggers account for vendor financial instability.
- Require continuous deposits, so the most recent version is available if the vendor collapses.
Without these protections, you may have the source code but lack the legal right to continue development or maintenance.
4. Use Verification Services to Ensure Continuity and Code Usability
Simply having an escrow agreement in place is not enough. If the deposited materials are incomplete, outdated, or poorly documented, your escrow will be useless when you need it most.
This is where technical verification services add critical value to your escrow arrangement. By regularly verifying deposited source code and documentation, you gain valuable insights into:
- Code quality – Are best practices being followed? Is the code well-structured and maintainable?
- Commenting and documentation – Is the code properly commented? Are system architecture and dependencies well-documented?
- Build and deployment readiness – Are all necessary files, scripts, and instructions included?
- Intellectual property compliance – Does the software contain open-source components that could create licensing risks?
With proper escrow and verification, if the original developer fails to complete the project, you can hire another developer to continue the work seamlessly—provided the escrow contains complete, well-documented materials.
Final Thoughts: Don’t Wait to Secure Your Software Escrow
Delaying your software escrow agreement until the software is nearly finished puts your business at risk. To maximize protection:
✔️ Negotiate escrow terms before development begins to secure the best terms.
✔️ Require deposits from day one with Automated Escrow™ to ensure ongoing protection.
✔️ Maintain work-in-progress deposits so escrow value aligns with project payments.
✔️ Ensure continuous retention of all escrow materials with Infinite Retention™.
✔️ Implement verification services to assess code quality, documentation, and usability.
✔️ Protect against bankruptcy risks by securing source code licensing rights in the escrow agreement.
At PRAXIS Technology Escrow, we specialize in automated, SOC2-compliant software escrow solutions that integrate seamlessly with GitHub, Bitbucket, and other repositories. Our verification services ensure that your deposited materials are complete, usable, and secure—giving you peace of mind and ensuring that your software investment is fully protected.
About PRAXIS
At PRAXIS Technology Escrow, we combine innovation with security to protect your most critical software and technology assets. As innovators in the field, PRAXIS offers the most advanced solutions in the industry, ensuring your deposits are always up to date and never lost, thanks to our Automated Escrow™ solution and Infinite Retention Policy™. Providing services worldwide from our U.S. headquarters, we pride ourselves on delivering flexible, tailored escrow agreements that meet
each client’s unique needs, backed by PRAXIS’ unmatched personal service. Our team of experts provides trustworthy and responsive support, ensuring your business continuity is always protected.