Updated: Aug 31, 2022
| Your Revenue Recognition Software Checklist |
WHAT IS REVENUE RECOGNITION SOFTWARE?
Revenue recognition software provides invaluable insights into how your business spends its money and makes its revenue. This is critical information that will enable your accounting teams to manage recurring billing, reduce revenue leakage, and keep your cash flow healthy.
The key element of this is understanding the principle of revenue recognition (the process of converting ‘bookings’ into ‘revenue’ across your customer's lifecycle). It is a generally accepted accounting principle (GAAP) which stipulates that your business can only recognize revenue when you’ve satisfied your contractual obligation by transferring goods or services to your customer.
So, what steps are accounting teams taking to optimize how they recognize revenue? Hopefully, they're using revenue recognition tools that automate the organization of finances and ensure compliance with regional accounting standards - the US Financial Accounting Standards Board (FASB) standards for instance.
Often, revenue recognition software is part of a larger end-to-end revenue management solution that helps an organization manage its overall cash flow. Bearing in mind that this is a crucial cog in your company's revenue machine, it's worth taking some time over your choice of tool. Here, we’ve gathered a checklist to help you choose which revenue recognition system is right for your business.
BENEFITS OF REVENUE RECOGNITION SOFTWARE
Revenue recognition systems help manage recurring billing but also ensure compliance with our region's financial accounting standards. Working with this type of software uncomplicates the process of recognizing revenue as the billing platform acts as the single source of truth. This enables you to manage recurring bills seamlessly and report on recognized and deferred revenues accurately, providing much-needed revenue recognition automation for fast-growing startups and enterprise companies alike.
Revenue recognition is vital for SaaS businesses because of how they charge customers upfront for services that will be delivered over a period of time. The ability to identify and track revenue-generating touchpoints supports the management of future revenue recognition. Companies use revenue management software to match their sales outreach with customer payments and to reduce revenue leakage.
Revenue recognition tools also allow you to recognize and allocate revenue to multiple business entities. Departments such as sales, marketing, services and operations use revenue management software to monitor the performance of products and services sold by your company to optimize future offerings.
WHY IS REVENUE RECOGNITION AUTOMATION IMPORTANT?
The first reason is that revenue recognition helps your business to remain compliant with the FASB’s ASC 606 revenue recognition standard. The US ASC 606 and IFRS 15 standards set principle-based specifics for how revenue should be recognized from contracts with customers. Businesses like yours are tasked with ASC 606 implementation, which is a model that supersedes most legacy guidance and fundamentally changes how you need to think about revenue recognition. This heralds a move from the US GAAP’s risk-and-reward-based revenue recognition model to the current ASC 606 revenue standard’s control-based model.
Financial planning is the next reason why it is important to use revenue recognition software. Managing your revenue recognition can affect everything from product strategy planning to sales commissions and compensation structures. Financial decision-making is better optimized through this software and your investors want to see accurate revenue recognition numbers so they can make informed decisions.
The final reason why you need a revenue recognition solution is that it helps you set standard methods and rules that recognize revenue in a specified way which is unique to your company. You can then use this software to automate revenue recognition schedules or analyze revenue by your chosen specific criteria. With this in mind, implementing revenue recognition automation, will save you time and improve the accuracy of reporting across your whole organization creating repeatable, tracked processes to ensure precise calculations.
TOP THINGS TO LOOK FOR WHEN COMPARING REVENUE RECOGNITION SOFTWARE
1. Not all revenue recognition software is equal
Many revenue recognition solutions have tools that help automate even the most complicated revenue calculations. You need software that is powerful, but simple to use. It should be able to handle a number of different subscription or product contract durations and be customizable and scalable. Here are some of the top things to look for when choosing revenue recognition software:
Tracked pricing details for individual or groups of products and services
Data richness and accessibility of the data
Ease of implementation, integration with other tools and ease of software management
Features for revenue recognition and allocations
Forecast project cost and revenue using forecast bookings against the project
Manage different types of revenue, such as recurring and transaction-based revenue
Analyze the performance of special offers, packages and incentives
Monitor revenue per customer, contract or project related to budget spend
Include best practices for revenue management optimization
2. Research the capabilities of different revenue recognition software
While all revenue recognition automation is designed to track, analyze, and forecast spend and revenue, there are significant differences between the unique capabilities of the major platforms:
Tools like Chargebee and GoCardless offer a really interesting suite of features like recurring payment functionality. This gives you the ability to integrate with 20+ payment gateways for recurring payment processing.
Chargify has actionable and useful reporting to help manage your product and service delivery, helping you to better understand the revenues generated per individual customer. Their deferred revenue balance report is a brilliant way to recognize revenue that has not yet been “earned” yet, so you can recognize the revenue generated from future product delivery.
Our Precursive Professional Services Automation app on Salesforce combines all of these functionalities and more to optimize your revenue recognition process. At the project level, revenue can be forecast and booked across fixed price work, T&M and/or milestones in Precursive. Our revenue recognition tool will also automatically generate revenue forecasts in real-time, which can lower the admin required from the finance team. Bear in mind that Precursive PSA is only available on Salesforce.
Each company needs revenue recognition software that works for its particular business situation. With our PSA software, you will be able to better forecast and recognize revenues more quickly, improving the financial performance of your business from an accounting perspective. To find out more about Precursive Revenue Management solutions for Salesforce, book a meeting with our team.
Learn more about our next-generation Revenue Recognition Software today.
Don't forget, recurring revenues and professional services revenue metrics are discussed in our new playbook: Traditional Services Delivery is Dead. Download today.