What is License Agreement?

Software licence agreements come in several models. A perpetual licence grants the right to use a specific version of the software indefinitely for a one-off payment. Updates and support are usually excluded and require a separate maintenance contract.

The opposite is the subscription licence — now the dominant model for business software — where you pay monthly or annually for continued access. When payments stop, access ends. Within subscriptions, concurrent-use licences limit the number of simultaneous users rather than total accounts, while named-user licences tie each licence to a specific individual. Named-user licences are the most common source of ghost licences when staff leave.

Most licence compliance problems stem from three situations. Over-licensing means paying for more seats or features than the business actually uses. Under-licensing means using the software for more users than licensed — a legally exposed position that suppliers audit for. Ghost licences are seats that were assigned to employees who have since left the organisation.

In SaaS contracts, watch for clauses that automatically increase the number of licences when usage thresholds are exceeded. These can silently raise your monthly bill without any purchase decision being made.

An annual licence audit — matching every active licence to a named, current user and comparing with actual usage data from the vendor — is the most direct way to reduce unnecessary licence spend.

Software licences are one of the fastest-growing cost lines in modern businesses, and most organisations do not have a complete picture of what they have purchased, what is actually in use, and who is using it.

The risk is twofold: profit leakage from paying for unused licences, and compliance risk from under-licensing. A clear licence register with renewal dates, user counts, and verified usage is the foundation for both cost control and audit readiness.