Software services are a mainstay for all industries and for businesses large and small. According to SpiceWorks, companies are spending $1 on software to every $8 spent elsewhere.
But how can a customer be sure that their data is safe after they’ve agreed to hand it over? That’s where software escrow steps in as a neutral third party: to act as a type of insurance for both the title company and the licensee to mitigate risk due to an unforeseen event.
In most cases, neither party may ever need the escrow agreement, but it always acts as a convenient solution to any problems that arise.
What is the Process of Software Escrow?
The software escrow process is established when the developer or software vendor provides the escrow agent with the latest version of the source code. Under contract, the developer must continually update the information periodically so if conditions set out by the licensee are not met, the data is released ready to be used.
Meanwhile, the escrow agent will perform integrity tests as part of the source code deposit to ensure the data is free of viruses and is accessible for the licensee if they ever need access.
How is Software Escrow Calculated?
The benefits of software, also known as source code, escrow are abundant from intellectual property (IP) security to a failsafe if a software company disolves. With this type of legal support, there must be a catch right?
Enter: Escrow service fees.
Escrow fees are part of maintaining the escrow account including software updates and security testing.
The cost of an escrow account will also depend on how many beneficiaries will use the source code escrow service. Types of escrow accounts include:
- · Three-party source code escrow agreements are used when an individual is licensing software developed from a software company directly and the client has the ability to view the status of the software at any time.
- Multi-beneficiary source code escrow agreements are established by the software business for their clients as a feature of their service to provide peace of mind. This type of account allows for an unlimited number of beneficiaries and ensures the software is well maintained and accessible.
These different levels of access weigh heavily on how much the fees are.
Who Pays for Software Escrow?
At the end of the day, who is responsible for paying for the set up and maintenance of the escrow agreement?
That depends on the parties involved.
For example, if a large enterprise wants to provide escrow service to all their customers as a bonus, then it would pay the setup and yearly fees.
However, if a smaller business’ customer asked for an escrow agreement, then the software vendor could either negotiate the price of the agreement to secure the sale, pay for it outright or the licensee would be charged for wanting the agreement.
When a licensee pays for the agreement, there is typically more attention on the details of the contract and escrow deposit schedule. As the customer continues to work with the vendor, they may monitor the escrow deposits more closely, so they’re not surprised if the vendor starts to experience financial setbacks. Escrow agencies, like EscrowTech, will likely provide a portal for licensees to monitor for source code updates to ensure the contract is being followed.
Software Escrow Contract Legal Terms
The goal of the escrow agreement is to protect the licensee if something happens to the software vendor. If the licensee is paying for the agreement, the contract should state that the developer is held accountable for any lapse in updates to the software.
How disputes and payment terms are handled should be laid out in the escrow document and handled between the licensee and the developer team. The escrow agent can only provide maintenance to the escrow, not as a legal advisor to either party.
The Cost of Escrow Services
The question on everyone’s mind now is how much escrow costs per month. At EscrowTech, the setup fee of $995 is always the same no matter how many beneficiaries are on the escrow account.
Any additional fees include:
- 2 cubic feet for Deposit Materials storage.
- Excess Storage Charges of $70 for additional space per year per cubic foot.
- Release fees to a beneficiary is $250 when the contract conditions are not met.
- A File Listing includes four depositis a year for $595 annually.
- The Multiple Beneficiaries option allows a source code owner to offload some of the costs to the licensees if there are 2 or more eligible individuals on the account.
- Seperated products with custom add-ons will incur additional costs based on how many beneficiaries are included and which products you choose to include.
At EscrowTech, we’re happy to help you find the plan that works best for your budget and needs. Personalizing your escrow agreement can mean both happy customers and secure IP.
Is it Possible to Lower an Escrow Payment?
Lowering your annual escrow payment will depend on whether you’d like to remove some of the services included in the contract. You can update your software escrow online through our customer portal, by mail or through courier service.
For more information on our pricing or to get started, contact us today.
