REVENUE RECOGNITION SOFTWARE GUIDE
Updated: May 14
| Your Revenue Recognition Software Checklist |
Knowing how your business spends its money and how it makes its revenue is a critical activity your accounting teams need to refine in order to keep your organization healthy. The key element of this is understanding the principle of Revenue Recognition, which is the process of converting ‘bookings’ into ‘revenue’ across your customer's lifecycle. It is a generally accepted accounting principle (GAAP) where your business can only recognize revenue when you’ve satisfied your contractual obligation by transferring goods or services to your customer.
So, how are accounting teams optimizing how they recognize revenue? Hopefully, they are using revenue recognition software that is designed to help organize your financials and ensure compliance with US Financial Accounting Standards Board (FASB) standards for instance, but standards will vary regionally. Often, revenue recognition software is part of a larger end-to-end revenue management solution. We’ve gathered a checklist to help you choose which revenue recognition software tool is right for your business.
BENEFITS OF REVENUE RECOGNITION SOFTWARE
The benefits of using a revenue recognition software system start with how they can help manage recurring billing but also ensure global compliant revenue recognition. Working with this type of software uncomplicates revenue recognition by using the billing platform as the single source of truth, enabling seamless management recurring billing along with revenue reporting for fast-growing startups to enterprise companies.
Revenue recognition is important for SaaS businesses for example because of how a SaaS business will look to charge its end customers upfront for services that will be delivered over a period of time and knowing the revenue generating touchpoints supports managing future revenue recognition. Companies use revenue management software to match their sales outreach with customer payments and to reduce revenue leakage. Also, this software is used 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 THIS SOFTWARE IMPORTANT?
The first reason is that it 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 this type of software. Managing your revenue recognition can affect everything from product strategy planning, 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 next reason is that it can help you set standard methods and rules that recognize revenue in a specified way which is unique to your company. You can use this software to automate revenue recognition schedules or analyze revenue by your chosen specific criteria. Finally, you will save time and improve the accuracy of your reporting across your whole organization creating repeatable, tracked processes to ensure precise calculations.
TOP THINGS TO LOOK FOR...
NOT ALL REVENUE RECOGNITION SOFTWARE IS EQUAL
Many revenue recognition software solutions have tools that help automate even the most complicated revenue calculations. You need revenue recognition software that is powerful, but simple to use. It should be able to handle a number of 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
Provide 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