When the vendor fails: Why B2B buyers need escrow as a priority for their software stack

Channel partners and managed service providers (MSPs) have always been on the front line when things go wrong with technology, and none more so than with third-party software. A vendor failure - whether through insolvency, acquisition, resource withdrawal, or a critical failure - can trigger immediate disruption to businesses, resulting in missed SLAs, lost data, and reputational damage.

Yet many partners still underestimate how fragile the digital supply chain has become. As business operations increasingly depend on SaaS platforms and niche software vendors, the risk of instability has grown sharply, and when a vendor collapses or stops supporting a critical system, it’s often the channel partner left trying to pick up the pieces.

Why vendor instability is a continual risk

Vendor instability is now one of the biggest hidden threats facing both end customers and the partners who serve them. Supply chains that were once linear now span multiple cloud providers, open-source components, and small, specialised vendors.

This complex digital web is made even more fragile by the fact that many suppliers are early-stage businesses, often operating with a lean team and limited financial buffers to weather a corporate storm. A single resignation, compliance issue, or loss of funding can bring operations to a standstill.

For MSPs, this risk isn’t abstract and far removed. In fact, when a vendor fails, customers won’t be calling the supplier - they will be calling their trusted partner; and even if the failure is entirely outside the partner’s control, their reputation can take a hit. It’s not just about downtime, either. A software supplier's collapse can trigger data access issues, unresolved security gaps, and legal disputes over intellectual property.

From my experience working across regulated sectors, very rarely has a vendor failure stemmed from a single event. They’re often the compound result of financial stress, untested dependencies, and a lack of oversight.

The trusted advisor role

This means we’re seeing MSPs being positioned as trusted advisors who need to be able to provide collaborative and consultative advice to clients. And, perhaps most importantly, guide customers through the hidden layers of their software ecosystem. It’s about helping them ask the right questions at the right time: Who owns your production environment? Are you managing increased concentration risk in extended supply chains? What happens if you fail to manage this risk?

By helping customers plan for these scenarios, partners can turn resilience into a value proposition – not a cost. It strengthens renewals, reduces churn, and builds long-term trust. It also protects the partner’s own recurring revenue, because the fallout from a vendor collapse can be just as damaging for the service provider as it is for the client.

In an increasingly competitive market, the partners demonstrating proactive resilience are the ones who stand out.

What being a trusted advisor means in practice

So what does proactive resilience look like in practice? Escrow gives partners a tangible way to preserve access through verification by securely holding a vendor’s source code and documentation. It’s a practical solution that turns uncertainty into control.

We’re seeing more MSPs and resellers include escrow agreements directly into their vendor management frameworks as a sign of operational maturity. It’s a simple but powerful way to demonstrate to customers – and regulators – that resilience has been considered, contractually defined, and independently verified. Of course, escrow works best as part of a wider strategic approach to operational resilience and risk management. That includes stronger vendor assessments, where partners evaluate the financial stability, technical dependencies, and long-term viability of their suppliers, and smarter contracts that define what happens if a vendor fails or exits the market.

It’s clear that resilience is no longer just a technical issue - it’s a commercial one. The best MSPs are those that can demonstrate they’re equipped to advise customers on vendor failure, helping them to have proper governance and encouraging the use of vital risk management tools, such as software escrow.