What is revenue recognition software?
Revenue recognition software automates how a company allocates contract value to performance obligations and posts the resulting revenue and journal entries to the general ledger under ASC 606 and IFRS 15.
Modern revenue recognition solutions are specifically designed with the needs of today’s revenue accountants in mind. These specialized solutions function as a revenue subledger by capturing transaction and revenue event data from an existing billing system, CRM, ERP, or payment gateway and then automating the revenue recognition process. The resulting journal entries can then be fed seamlessly back into the general ledger.
This increased revenue automation can help minimize manual processes, reduce risk, and prevent revenue leakage. And, with increased automation, revenue teams are able to devote more time to analytics and business partnering.
Beginning the journey to greater revenue recognition automation
As your business grows and scales to meet changing customer needs, shifting industry trends, and compliance requirements, you will inevitably find your revenue recognition processes becoming more complex. Failure to adapt to these changes can lead to lost business opportunities, increased costs, inefficiencies, and unnecessary risks. In addition, time-consuming manual processes, insufficient legacy solutions, and long working hours can all negatively impact the mental health of revenue accounting professionals and lead to higher turnover.
To keep up with the rapid pace of change, your accounting team will need greater levels of automation and more agile technology that is purpose built for modern revenue recognition.
This buyer’s guide will provide a complete roadmap for researching, evaluating, and selecting the right revenue automation software for your company.
“Revenue automation is the catalyst that empowers companies to unlock the full potential of tailored offerings. By automating revenue processes, businesses can dynamically adapt and customize their offerings, delivering personalized experiences that resonate with their customers on a deeper level. This not only enhances customer satisfaction but also drives revenue growth by fostering long-term loyalty and unlocking new avenues of monetization.”
What key capabilities should you look for?
When selecting a revenue recognition software solution, it’s essential to consider features that will support your business’s requirements today as well as scaling for future growth.
Here are the key capabilities you should prioritize:
- Contract grouping
- Performance obligations
- Contract modification management
- Standalone selling price (SSP)
- Delivery-based rev rec
- Close process dashboard
- Revenue reporting
- Cost management
- Variable consideration (VC)
- Future-focused integrations and extensibility
- Proven record of excellence
“The old version of accounting where you sat in the back end and did nothing but count the beans after everybody else made the decision — that’s long gone. Accounting has to evolve. You have to be involved in the front end with the business, with sales. To be really good in rev rec, you really need to know how your company is actually selling to customers, how products are priced, and how customers are looking at your products and services. If you invest time in truly understanding the business, revenue gets really easy.”
How do you know if you need more revenue recogniton automation?
The following are business initiatives that may drive the need for revenue automation software:
- Preparing for M&A or IPO
- Reducing manual processes
- Minimizing customizations and hidden costs
- Improving SSP analysis
- Streamlining reporting and close process
- Reducing audit time and costs
- Improving job satisfaction and retaining employees
Tip
Revenue teams crave more automation
Research shows that revenue teams may spend over half their time performing repetitive manual tasks and 68% report not having the right technology to address growing demands from the business.
How do you build a revenue automation project business case?
Clearly knowing and understanding the goals and objectives of your buying committee and stakeholders is key for a successful revenue automation project. As you embark on this project, there are several steps you’ll need to take:
- Contract grouping
- Align on the scope and goals of the project first
- Understand the pain points and value from the perspective of your stakeholders
- Highlight several key benefits and improvements provided by a new solution
- Build a persuasive and targeted business case
Learn more about revenue automation software
Now that we’ve covered the basics of revenue automation software, it’s time to dive into each of the features and capabilities your business will need to streamline and scale your revenue management processes. Keep reading to learn more.
FAQs
1.
What should revenue recognition software do?
It should group contracts, identify performance obligations, allocate standalone selling prices, handle contract modifications and variable consideration, and post journal entries to the ledger with a traceable audit trail.
2.
Is revenue recognition software the same as billing software?
No. Billing decides what to invoice. Revenue recognition software decides when and how much revenue to record. The two need to share data, but they follow different accounting rules.
3.
When does a company outgrow spreadsheets for revenue recognition?
Common triggers are an IPO or acquisition, new pricing models such as usage or hybrid contracts, a close that depends on manual reconciliations, and rising audit effort.
4.
What should buyers test in a demo?
Use real contract data. Test a contract modification, a hybrid arrangement with a usage component, and an auditor request that traces a journal entry back to the source transaction.