It may seem counterintuitive, but the fact is that more customers are actually demanding that their ISVs provide licensing management services as part of their software partnerships. Customers are hip to the benefits of compliance in terms of maximizing the value of their investments – and are coming to view license management as a value-added service from their ISVs.

This is particularly true with the surge in recent years of merger and acquisition activity, which hit a record high in 2015. This environment is an ideal time to initiate a licensing compliance check, because customers need help getting a full view of their assets to reduce regulatory risks that stem from noncompliance. Uncovering noncompliance can open the window for new purchases that advance your customer’s innovation strategies, especially given the funds for settlement may come out of legal budgets, not IT.

So here’s the deal: if you like your customers, audit them. The audit is a softer approach toward license management that is really geared toward benefiting the customer. It provides insights into what shortcomings they may have, whether they’re under-utilizing or over-utilizing software, education on additional modules, and positions them with a platform for business process innovation.

So what can you – and your customers – expect during an audit engagement? Here are the lifecycle basics:

Step 1: Qualification

The first step in performing an audit is ensuring that the customer is a viable candidate.  While a combination of reports from the account team, resellers, even a whistleblower may help lead you to the right targets, there are a host of other factors that must be taken into account. Forecasted revenue, the customer tier, contractual documentation and even the political landscape of the client’s location must all be considered. And once you get closer to zeroing in on who to engage, piracy business intelligence software can provide the keys to a streamlined engagement – as it can pinpoint usage location, usage history, the number of unique machines, and system and network attributes to provide leverage and ease data gathering.

Before the formal audit notification, many vendors begin the process with an email to an individual in a corporate governance role in their top strategic accounts, sort of a friendly heads up that they’re on notice. It affords the customer an opportunity to ask questions on better terms, and sets a tone that makes the process more collaborative.

Insight for ISVs: You need not use the word “audit,” in the initial correspondence. Frame the engagement as part of an “ongoing customer success program,” to “outline usage,” and “better understand deployments and maximize ROI.”

Insight for customers: Notification of an audit brings with it the possibility that you will be buying additional licenses. Positioning your business to best handle the next stages of the process will put your company at an advantage when it comes to negotiating settlement terms.

Step 2: Customer Engagement

The formal audit notification will aim to schedule a call to determine the course of action and the scope of the usage assessment. The customer will be notified of noncompliance by courier and electronically. The lead contact will be identified, check-in calls scheduled, and the timeframe agreed upon and data gathering commenced.

Our auditing team does all data gathering remotely, creating a customer portal and providing support for whatever license management software the ISV chooses. All data is uploaded to the customer portal for complete visibility and timely reporting.

All said and done, this process could take up to a month.

Insight for ISVs: Make sure you have an executive sponsor within your organization to ensure coordination and buy-in between sales, product and legal teams. Miscommunication among these parties can put up roadblocks to a smooth process.

Insight for customers:  Approaching the audit in a collaborative manner, and having the necessary data ready up front, will ease the process.

Step 3: Settlement stage

Once data is gathered and reports are ready, settlement discussions can begin. This is the part of the process that can unnecessarily prolong the entire engagement, even though it is in everyone’s best interest to settle the matter quickly – and if the end of the year is nearing, very quickly. Neither you as the ISV nor your auditing arm want to carry over legal and financial obligations into the New Year. Seek a lump sum payment rather than prolonged payment terms. As part of the settlement terms, ask that the customer circulate a software code of ethics to employees, complete a certificate of compliance and submit the necessary documentation to ensure it.

Insight for ISVs: Capture the information about the customer’s entitlement digitally for ease of future tracking and upsell possibilities.

Insight for customers: It is in your best interest to resolve this without getting entangled in legal proceedings. View the audit as an opportunity to strengthen your software foundation and your relationship with the vendor.

All said and done, the process can take from three to six months. But the time invested is worth it for all parties involved. For customers who cooperate with an audit the outcome is almost always beneficial for both parties. ISVs recover undiscovered revenue, while customers gain new functionality and a stronger partnership toward innovation, often at a discount.