Legal contracts can be a very intimidating but necessary part of all major transactions that your organization enters into. The scariest aspect of these contracts is the fact that if you do not interpret the information correctly, or if you do not ask the right questions, you can end up getting less and paying more than you expected. This is especially frightening when you are a nonprofit organization who is working with an already limited budget.
ERP software licensing agreements are one of the many legal contracts that can seem impenetrable at first, but these contracts can be better understood by simply asking the right questions. A website called “Find Accounting Software” has broken down the most important information to know before entering an ERP software agreement into 10 major points. We have summarized those 10 points below:
1. How many users can access the software?
This question may seem pretty straightforward, but it is important to first understand the definition of the term “user” in the software contract. This term could likely represent one of two meanings: named users (licenses purchased for each individual using the software) and concurrent users (licenses purchased based on how many individuals will be in the system at the same time).
2. How long can the software be used?
The two most common approaches for how long software can be used are perpetual and term-based licensing. Perpetual licensing means that you have access to the software forever, and this is most common with on-premise ERP solutions. Term-based licensing must be renewed with every passing term (generally monthly or annually). This is more common with software-as-a-service (SaaS) deployments.
3. What functionality does the contract stipulate?
Since most ERP systems are very robust tools, it is important to verify that your software licensing agreement covers all of the features and functions that you are expecting to receive. Even if you are looking at a modular ERP system that allows you to license only the functionality you require, it is still important to understand this portion of the licensing agreement so that you will know how to license new modules if necessary in the future.
4. What implementation services will be provided?
Software providers will generally provide at least some of the implementation services, so it is important that the contract documents the scope of the work as well as the details of the implementation services. This could include things such as implementation deadlines and expectations about your responsibilities in the process.
5. What support is included?
Support is an important and ongoing aspect of leveraging an ERP system. For that reason it is necessary to have a clear understanding of what level of support you expect to receive and what support the licensing agreement specifies. This includes reviewing support items such as training, ticket response time, support availability and maximum number of support times.
6. What are your rights to software version updates?
Being up-to-date with the version of ERP software that you are using allows you to access new features and also have bug and security issues fixed. Many ERP software providers will bundle updates with support, so it is important to find out how updates are handled while reviewing your support terms. It is also a good idea to find out if the software provider distinguishes between major and minor software updates.
7. Can you access the source code?
If you expect to have access to the source code in order to make your own customizations, you must verify that it is clearly stated in the licensing agreement. Many software providers do not want to share their source code because it affects their competitive confidentiality and changing the source code can make support very difficult. If a software provider does agree to share their source code with you, it is generally for a fee.
8. Are there any usage-related fees?
Having a usage-related pricing model is common in many types of SaaS applications, and this type of pricing is generally determined by your bandwidth or data storage consumption. Some examples of usage-based pricing are payroll programs that charge based on the number of W2s/T4s processed and CRM software that sets rates based on the number of contacts created.
9. What are your rights to the data?
Many software buyers express concern over their data ownership in SaaS systems since the use of the software is essentially being rented out. Overall, software buyers do have ownership of the data, which means that the solution will allow for the export of records. However, not all export features are equally robust, so it is important to find out which settings and permissions-oriented data can and cannot be exported. In addition to this, you should find out where and how your data will be stored.
10. What happens when you want to buy more?
Overtime, your ERP system needs are very likely to change with the needs of your organization. To be able to better plan for the future, it is important to ask about what rate you will be paying if adding new users or modules. You need to determine whether you will be paying the list price or the rate you originally contracted at, since these prices are generally very different.
To read more about what to consider when entering an ERP software licensing agreement, click here to access the full article.