Editor’s Note: Today’s post is from TechnologyAdvice, a research company that connects buyers and sellers of business technology. Author Tamara Scott, a technology analyst, writes about learning management, employee engagement, HR, and many other technology verticals.
Revenue recognition software does what conventional ERP and accounting systems can’t. It tracks and pinpoints actual revenue across complex contract to cash systems and navigates the GAAP and FASB requirements for subscriptions and contracts (Generally Accepted Accounting Principles and Financial Accounting Standards Board, respectively, for the uninitiated).
The pitfalls associated with revenue recognition are many, which is why the GAAP and FASB enacted guidelines. Properly implemented software systems with the capability to aggregate, analyze, and attribute key data points from your contract to sale process are integral to a smooth billing and reporting process.
These four essential integrations give your sales and production teams vital information about the status of projects, how that status relates to existing and future contracts, and the correlation of your projects with key financial indicators. While revenue recognition problems proliferate within the software and technology industries due to the myriad of complex revenue streams, these integrations can provide clarity for contract projects within any industry.
- Contract Management
An essential part of revenue recognition is the contract and signature process. This initial stage of revenue recognition can make or break a deal, but also requires exact record keeping to attribute revenue to the proper billing period.
Contract management tools (especially those with an e-signature feature) speed the contract creation, negotiation, and signing processes. Instead of sending a single paper contract back and forth between partners, a contract management tool allows all parties to read, comment on, and update the contract. This gives executives and legal experts from both sides of the deal direct insight into the entire process.
A contract management tool increases the security and privacy of any agreement and saves significantly on mailing and courier fees. The contract exists electronically and securely in the cloud, rather than an insecure email attachment or paper contract.
This may be the the most essential connection your revenue recognition app can make, as it saves your accountant valuable time they would otherwise spend entering and re-entering revenue and expenses. A direct integration with your accounting system (or larger ERP software suite, if that’s the case) is critical, but having the ability to export and import via CSV documents is an acceptable alternative. It still means way too many steps for a busy accountant, but it’ll work.
Using revenue recognition software alone won’t be enough for most established businesses that require a robust accounting system. These programs use complex algorithms based on tax codes, payment and commission standards, and multiple sources of income. While a revenue recognition tool will clarify your revenue standing at any point in the contract lifecycle, an integrated accounting system and a dedicated accounting workforce are essential for most large enterprises.
- Project Management
A must-have if you’re going to use the percentage of completion model. A good project management tool will help your team plan each milestone on the way to completion. By connecting these tools to your revenue recognition system, you can better track the percentage complete in up-to-the-minute numbers, rather than guessing.
Project management tools also give your team flexibility when projects last longer than expected and visibility into the actual processes it takes to complete a job, rather than the idealized version your sales team would like to convey to the buyer. These tools keep everyone honest, and thereby help your team increase sales and engagement as you stop overpromising and underperforming.
- Sales Tracking
Sales tracking tools range from lead management and scoring to full sales CRM integrated systems. Whatever your speed or depth of insight, sales tracking tools help your teams forecast and track deals throughout your pipeline. Integrating the data from your sales tracking tool with your revenue recognition system can fill in gaps left over from siloed business systems.
If you have a long and complicated sales process that includes many milestones, best practices suggest breaking down your payment contracts to the level of the milestones, thereby simplifying your revenue attribution. When sales tracking tools combine with your project management and contract management integrations, reps and accountants can gain a clear view of each customer or prospect, the amount of revenue attributed to each and the time to expected payment.
The most important part of any revenue recognition system is its clarity and insight into your sales and production pipeline, as this data informs financial attribution. Implementing new technology can be a scary proposition, but the ROI of revenue recognition integrations will show itself almost immediately.
Learn more about Return of Investment on Revenue Automation Solution.