2 words. Revenue Recognition. If you’re a financial executive, or anyone working within the financial management realm, then you very likely know something about it. And that something may be that it’s not as straightforward as people may tend to believe.

Revenue Recognition or RevRec as it’s known to be called, is in itself a challenging subject, which is only becoming more complex considering the added variables in today’s (and tomorrow’s) business world.

We carry the belief that in order to properly understand and ensure our RevRec practices are up to snuff, we must rely on proven processes and an automated engine to provide us with unbiased results for daily business events.

Luckily, NetSuite’s Advanced Revenue Management feature can help ensure a more comprehensive approach to multi-element contract management, with respect to SaaS (and the software industry), Project Management while also helping to adhere, if required, to the ASC 606 Standard on Revenue Recognition.

With that our 3-part Revenue Recognition blog series will shed light on often challenging aspects of RevRec for today’s business world.

SaaS and Revenue Recognition challenges

RevRec for Software-as-a-Service (SaaS) companies and other companies for which deferred revenue, or income received for services not yet delivered, is a reality that requires clarity with respect to RevRec practises to ensure that their financial reports are accurate and stakeholders are properly informed.

SaaS RevRec may seem transparent and simple, as timely recurring transactions are charged to your credit card based on a selected plan. But what happens when the month to month transactions start to sway based on varying client needs? Forecasting becomes more difficult and midmonth upgrades or worse yet downgrades can really put your financial clarity to silt.

Licence models, multi-element packages, upgrading and downgrading plans pose other challenges in revenue recognition management, as does the increase or decrease of account licences/seats, which may flow the client into or out of different cost per licence brackets. Ultimately, with Saas we have to keep in mind the complexities of allocating revenue across different items included in any bundled offer, where revenue is based on fair value, which often differs from the invoiced amount.

Imagine running ad hoc promotions and how to manage them. Yes, we’ll cover that as well as all the items  that make it difficult to track revenue and report on considerations such as recategorized revenue.

Without intelligent tools that provide enough flexibility for you to account for these scenarios, or professionals versed in revenue management and financial reporting, configuring your engine can become not only time consuming, but also confusing while raising the possibility of inaccuracies.

This is why we’re going to explore a lot of how NetSuite’s Revenue Recognition engine, helps with the management of multi-bundle packages and other challenging, often head-scratching scenarios, that are found in today’s SaaS agreements.

Professional Services, Project Management and those pesky Change Request Challenges

It’s amazing to think that the each minute aspect of a project has potential repercussions on a project's profit margin. Some are more obvious than others and with that, some are easier to manage than others.

A recurring topic that is often examined within the RevRec space is mid-project change requests.

One of the most potentially complex areas found within this realm of topics relates to the challenge of how to effectively define the change management process.

Another area of revenue recognition that seems to have a plethora of options is how service companies will evaluate revenue on Services as opposed to products. In other words, how to validate and report on the delivery of a given service and at what point revenue becomes recognizable.

We’re actually very excited about these topics as there are so many questions and circumstances we’ve encountered that I’m sure our experience will help you with your current challenges.

ASC 606 Standard - Revenue Recognition Standard Relating to Customer Contracts

The new standard, which applies primarily to a company’s customer contracts, is based on the core principles that organizations should identify the performance obligations in a contract, determine the transaction price, and then allocate it to the performance obligations in order to recognize revenue.

That may seem like a mouth full, but it has practical significance. What’s more is that it enables intangibles to be reported on in a consistent manner.

The standard removes inconsistencies in the existing reporting guidelines, improves disclosure requirements, and provides a more robust and flexible framework for dealing with different revenue scenarios.

Whether you think you may need to adhere to the new standards or not, it’s important to inquire with those responsible for your financials to assess whether the standard is a requirement for you.

Further to that, we will be exploring how NetSuite’s Revenue Recognition engine enables companies to have everything in place to accommodate the ASC 606 Standard’s adherence requirements.

What’s Next?

RevRec is such an immense topic and we’d like to explain it in more in detail. So we’ve decided to develop this blog topic into a multi-post blog series. My colleagues and I are working on getting into the nitty-gritty of more topics such as the challenges related to SaaS management, Professional Services, Project Management, Change Requests in addition to the new ASC 606 Standard.

The goal is to paint a clearer picture about the various aspects of RevRec and how NetSuite can address each one, making your business run smoother while being confident about your RevRec process.

Do you have any suggestions for future RevRec topics that you’re like us to write about?  How about sharing your  experience with managing revenue recognition. Let’s share our thoughts.