AP Automation: Choosing AP Software Licensing Model

Thinking about accounts payable licensing modelYou decided your organization needs an AP Automation (APA) solution and recognize that selection involves picking a solution that best meets the needs of your organization based on: Solution (features & benefits); Implementation; Support; and, Price … a daunting task for sure! This piece examines various APA licensing models that drive price to aid in evaluation. Two important notes: (1) Price fluctuates with various licensing models and careful evaluation is a must; and, (2) Always calculate to total cost of ownership (TCO) including software, support, implementation, training, solution hosting & administration, and cost of any third-party services (see TCO RANKING in Summary section).

Licensing Model #1 – Software Purchase & Support

This is the most common APA licensing model. It includes an upfront license payment and an annual support fee. This non-recurring amount of the license is based on variables such as users and expected annual range of invoices to be processed. The amount of the support fee is based on a percentage of the software purchase amount with rates ranging from fifteen to thirty percent (15-30%). This support fee is always recurring. Non-payment of the ongoing support fees will not result in access or limited functionality issues, it simply terminates access to big fixes and updates.

Licensing Model #2 – Software Subscription (SaaS or Leasing)

Some APA solution providers offer their software via subscription. This model gives your organization access to the software on monthly or annual basis and is always recurring. The major benefit here is minimal upfront costs. There are two main types of subscription: Leasing; and, Software-as-a-Service (SaaS).

#2a Leasing – Providers that offer leasing install their solutions either on the customer’s premises or in the cloud using Infrastructure-as-a-Service (IaaS). Annual subscription, via a contractual commitment, is always cheaper than monthly. Not paying on time will result in access or limited functionality issues. Software budgeting is straight forward.

#2b SaaS – SaaS providers are always in the cloud. Annual subscription is cheaper than monthly and not paying on time will result in access or limited functionality issues. This is the easiest model to understand as all costs, with the exception of implementation & training, are included in the monthly fees. SaaS solutions provide customers with a faster path to operation IF your business processes map well to the solutions’ baseline. Customers with unique business rules and processes will have difficulty with customization and/or changes.

Licensing Model #3 – Transactional

This is highly popular APA licensing model and is usually based on the volume of invoices processed. Transactional models are variable models based on invoices processed per month. Prices for transactional models range from one dollar ($1.00) per invoice for high-volume (>25K/Month) organizations, up to three dollars ($3.00) per invoice. Implementation is almost always a separate charge and is rarely amortized in the transaction fee. Rates come with contractual commitments to invoice ranges. As this model has no limit to the upside and introduces this risk for customers, you might face difficulties in planning spending.

Summary & Summary Table

The table below provides a quick summary. Orienge provides an APA solution named Conterra FIM and is offered via Software Purchase and Software Subscription Leasing. Competitive offerings can be found at: Perceptive Software; Verian; Esker; and ReadSoft.

 

APA LICENSING MODEL

PROS

CONS

BEST SUITED FOR COMPANIES WITH

TCO RANK

Software Purchase & Support

Customizable, controllable,  Scalable, best TCO

Requires hosting & admin, higher cost of entry

More than 1,000 invoices/month

1

Software Subscription (Lease)

Low cost of entry

Requires hosting & admin, TCO becomes higher in out years

Tight cash flows and unique business processes

3

Software Subscription (SaaS)

Low cost of entry, fast start, no hosting & admin

Difficult to adapt and customize

Business processes that map well to SaaS baseline

2

Transactional

Low cost of entry, best first year cost

TCO becomes higher in out years

Predictable invoice volumes

4

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3 thoughts on “AP Automation: Choosing AP Software Licensing Model

  1. Very interesting blog and topic. Our company is in the beginning stages of evaluating vendors to solve many problems in our accounting processes. This will definitely expand our requirements and hopefully make for a better solution. Thanks!

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