Subscription Accounting

The Reality Of Accounting

Many CFOs today come from a static environment where accounting practices and rules have not changed, literally, in decades. Sure, they’re using accounting software to carry out bookkeeping exercises and to generate management and statutory accounts. The tools have changed but the rules and methods have not. You can’t simply turn your old accounting system into a subscription accounting one. Doing so would entail significant cost, long project timescales and ultimately a huge amount of customization (often tying you to a fixed version of the packaged software underpinning the new system). And what you lose is system agility, the ability to take advantage of new software releases and the ability to move forward with a small software maintenance footprint. In short, you may end up with a stifled product feature set due to excessive customization.

A better way: Realign your thought processes and business processes to take advantage of the new subscription management technologies available.

In a traditional product company, the finance department usually has ownership of the financial aspect of the transaction and the process; the necessary reality is that the process includes audit and controls. But issues arise when they try to impose the old process conditions on the new subscription system; for example, only a full credit will be acceptable, and a new invoice will be issued to cover the “delta” i.e. what the customer actually bought vs. what was returned/refunded. Perhaps they need a 1:1 match between the credit and the original invoice.

The problem with using a traditional process in the new subscription business model that it doesn’t work without customization. The subscription model works on the basic premise that you start with version 1 of the sale (or subscription, really). Any change after that will give you version 2, version 3, ad infinitum. For example, Zuora uses its own mechanism, known as an Amendment, to manage such changes.

Are you really adapting to the subscription model and increasing your top-line recurring revenue? Get our free ebook An Introduction to Subscription Finance today.