According to the statist With the growth of the enterprise software market in recent years, by 2022 IT spending on enterprise software is expected to reach around $672 billion worldwide, an increase of 11% over the previous year.
With all this growth, it is essential to monitor software signatures in order to reduce costs and not impact your company's budget so much.
Software License
Licensing is a contractual document used by developers of digital programs. It is used to define whether the application is in the public domain or is blocked by copyright, as well as to determine how the source code can be used.
Despite the various types of software licenses, the principle is similar: licensing grants or limits the right to use a certain program to the end consumer, which can be an organization, a government entity, or even a person who will use it at home.
The application contract establishes the rules, defines how to handle copies and modifications to the program code, and determines the penalties for non-compliance with the terms.
The licenses still serve to outline user support, deal with update policies and the list of services provided.
What types of software licenses are available?
The way in which each license works varies according to the category in which it belongs. Check out the main ones:
- Self funding: software developed by the company that uses it. The organization owns the program and can use it freely. When software is shared between companies, the license applies co-sourcing.
- Perpetual Acquisition: It works like purchasing the program. After purchasing, the user can use it for life, but without the right to updates or maintenance.
- Use license: allows you to use the program on just one machine, with updates included. However, it requires payment of administrative fees and does not include maintenance.
- ASP: It works like software rental. The company pays monthly to use the program, which is not hosted on its servers.
- SaaS: Similar to ASP, but the software is stored in the cloud and does not require installation. Payment varies depending on the number of users.
- Open Source: The source code is open, allowing the user to make modifications to adapt the program. However, there are limits that differentiate it from free software.
- Free software: It offers the user complete freedom to copy, distribute and modify the program's source code. However, this does not mean that the software is free.
- Freeware: It can be used and distributed free of charge, but it is not necessarily open source for customization.
It is also worth remembering that there is a trend towards new forms of software licensing. As a sales strategy in the era of high-end computing, they must be increasingly adjustable and customizable for each customer.
How to classify software subscription expenses?
The acquisition of software started to be classified in element 40 – Information and Communication Technology Services – Legal Entities”. The new classification comprises the provision of services by legal entities to Public Administration bodies and entities, related to Information and Communication Technology - ICT, not classified under other expenditure elements.
Software can be classified as current expenses or as capital expenses. In the first case, when the expense not contribute, directly, for the formation or acquisition of a capital asset, such as software leasing, as it is a current expense.
when the expense contribute, directly, for the formation or acquisition of a capital asset, such as the development of software that will be part of the intangible asset, the expense must be classified as an expense as a capital expense, given that it represents an investment.
In this way, we will have the possible budget classifications according to the nature of the expenditure.
3.3.XX.40 in the case of software leasing expenses (Current Expenses).
4.4.XX.40 when it comes to contracting a company for the development of software that will be part of the fixed assets (Capital expense).
How to count software subscription?
Accounting varies depending on whether it is a software subscription or the settlement of the expense of software development.
This is because the software developed will represent an increase in intangible assets, being an investment that directly contributes to the formation of capital goods.
In the case of software subscription, the equity effect is diminutive, since the software signature is a service expense that does not directly increase equity.
Thus, the software subscription, which is a current expense, must be accounted for as follows:
In active:
D - asset / diminutive equity variation / services / leases
On liabilities:
C – short-term liabilities / suppliers and accounts payable
How to optimize the financial management of software subscription expenses in practice?
the management of IT costs presents major challenges, such as the dispersion of software subscriptions by departments and the difficulty in prove the return on IT.
Here are some tips to optimize the financial management of software subscriptions and other IT management expenses.
1. Take a software subscription inventory
O active license inventory will allow identify possible idleness and signing of software that is no longer used.
With this, there is the possibility of IT cost reduction without losing in quality.
In this inventory, also consider details about the software subscription, such as purpose, resources, expiration date and other relevant data to avoid financial waste.
2. Adopt cost centers
cost center it is a form of internal division that creates independent units in relation to the calculation of expenses and income. This division associates costs and payments to each of the company's projects, departments, or company branches.
In the financial management of software subscription, it is interesting consider company departments or projects as cost centers.
Thus, it is possible to have greater transparency of software subscription costs and other expenses depending on the department or project.
Spending transparency is essential to greater financial control and resource optimization.
3. Use a financial management tool
The use of a financial management tool allows automation of tasks, greater financial control and transparency in IT costs. It also covers dashboards and management reports on expenses.
When managing software subscriptions and other IT expenses, it is important to have a tool that already allocates expenses by cost centers.
Thus, the survey of IT costs and indicators is more accurate and time is gained to carry out more in-depth analyzes in financial management.
4. Use corporate card for payments
The use of corporate card brings several advantages to financial management, not just subscription software.
The prepaid PJ card, for example, allows schedule recurring software subscription payments, in addition to counting cost cap function.
It is a means of corporate payment interesting for financial management by cost center as indicated. Some of the benefits are:
- Facilitates the division of expenses by cost centers, making it possible to use a prepaid card for each cost center (department or project) with a balance referring to the pre-approved budget;
- Promotes greater cost control with the centralization of software subscription expenses and other department/project expenses in the same invoice;
- Greater control over budgeted and realized costs across departments and projects.
With the adoption of a prepaid PJ card per department, for example, much easier to identify the origin of expenses in real time – minimizing phantom expenses common when there is the same corporate card for several departments.
As it also works as a spending cap, a prepaid PJ card also avoid budget overruns.
When the prepaid PJ card is integrated into the financial management platform, the benefits are even greater.
In that case, the Expense reconciliation is automatic. That is, when an expense is made on the prepaid PJ card, it is automatically assigned to the respective cost center in the financial management platform.
As expenses are automatically assigned to your cost center, the month closing of finance is also facilitated.
This payment method also improves department autonomy, that have greater freedom to manage your available budget, reducing finance approval requests for each investment/payment.
Thus, expense management and accountability, not only signing software, it becomes much more practical – with saving time for finance and other departments. To better understand how prepaid cards work, access the guide: all about prepaid card.
What is the risk of using unlicensed software?
Giving up on contracting software or “cheating” the contract by downloading the application illegally can be much more expensive. To begin, user data becomes vulnerable, especially on account of the phishing (data theft common in pirated software).
With this security hole, your sensitive information can be accessed by malicious users, facilitating criminal practices. Exposure to viruses and malware is in the package, which can cause irreparable damage to your information and cause serious damage.
Pirated programs present another problem: instability. They become even more harmful because lack of technical support, which is a benefit that only regularized users can enjoy.
In addition to exposure to these numerous risks, the company's credibility is compromised. Your processes may suffer damage and delays that will harm the relationship with your consumer.
About the software license
A software license, or computer program license, is a definition of authorized (or prohibited) actions, within the scope of a software programmer's right. computer software granted (or imposed) on the user of this software. User means any legal entity, companies or an “end (domestic) user”, from which the term end user license agreement originates.
When a license adds restrictions in addition to those existing in copyright, the user normally has to accept that these restrictions are imposed in order to be able to legally use the software, this being one of the differences between a free software license and a non-free software license: free software licenses add rights to those already granted by copyright, leaving the only rules they impose to the act of redistribution.
In general, anyone who uses a software must obtain a license — paid or free, temporary or permanent — to use it. In the case of commercial and non-free software, the supplier grants the license only to users who pay for use. This is a way of protecting the authenticity of the product and the use of means to circumvent a software license may constitute an illegal act.
License types:
temporary licenses Perpetual licenses allow a program to operate for a specific period of time, while perpetual licenses have no time restrictions. Perpetual licenses are more recent and are usually tied to the operating system, which updates the date automatically. Some licenses limit the amount of use of the software, such as programs that perform specific calculations, and block further access when the user exceeds that limit. This restriction can reduce the cost of this type of license.
With the popularization of the internet and the connectivity of computers and consoles, licenses became virtual, hosted on servers of the supplier companies. Many programs only work when connected to the internet to validate the license, making it difficult to use pirated versions and ensuring that only authorized users have access.
At network licenses and constant updates have led to the end of perpetual licenses, with annual licenses becoming the norm. This model allows companies and users to pay continuously for the use of the software, very common in essential tools such as software programs. 3d modeling integrated with databases, which allow monitoring of usage in real time.
Despite this, many companies still use key-based licenses, which provide security against unauthorized access. Although considered expensive, they are the main source of revenue for developers. Competition can reduce costs, but it faces barriers: files created in one software are rarely compatible with competitors, and older versions do not open files from newer versions, forcing constant updates. Thus, perpetual licenses lose ground, as they limit use to the version at the time of purchase.
License Management as a Pillar of IT Governance
More than a question of economics, control over software licenses is a key piece within a solid structure of IT Governance. Effective governance requires that all technology assets are aligned with the organization’s strategic goals — and this includes tools that are licensed, used, and continually renewed.
By maintaining structured license management, companies avoid risks of non-compliance, fines and operational interruptions, in addition to promoting the conscious and rational use of technological resources. This practice also favors more assertive decision-making, based on real data about business usage and needs, which directly contributes to the alignment between IT and corporate strategy. It is, therefore, a fundamental action for any company seeking more strategic, secure and efficient IT.
Governance References: ITIL, COBIT and ISO in License Control
Several internationally recognized models reinforce the importance of software asset management as part of IT Governance. The framework COBIT, for example, sets clear guidelines for companies to align their technology with organizational objectives, focusing on control, optimization and value of IT investments. In it, proper license management is directly linked to value delivery and risk mitigation.
already the ITIL, widely used for structuring IT services, addresses asset and configuration control (ITAM/CMDB) as one of the foundations for a successful operation — and good use of licenses is within this scope. In addition, ISO/IEC 38500 standard offers principles for effective IT governance, encouraging ethical and responsible practices, especially in the use and acquisition of software.
Conclusion
Incorporating these frameworks into your company’s routine is a way to ensure not only compliance, but also maturity in the use of digital resources. And the good news is that this starts with simple steps, such as mapping and periodically reviewing your existing license fleet.
Do you want to understand how to optimize software license management and strengthen IT Governance in your company? Talk to one of our experts now and discover how 4MATT can help you reduce costs, gain visibility and ensure compliance.
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