When you hear the phrase revenue recognition, what’s the first thing that comes to mind? If you’re like most people in the finance world, initial thoughts lean toward processes that are complex and time-consuming. Even in the most basic scenarios such as retail, taking revenue to the recognition stage can become problematic. Wouldn’t it be nice if you could make your revenue recognition processes – those basic and complex – more straightforward? You’re in luck. We’re breaking down the 5 steps of revenue recognition from a compliance perspective and the 5 steps to automate revenue recognition.
How ASC 606 and IFRS 15 Can Simplify Revenue Recognition
Although you must abide by governing rules, you can still streamline your processes and make them more efficient. Let’s start by looking at the specifics of ASC 606 / IFRS 15, and how they’re making revenue recognition easier.
Designed to govern revenue reporting, ASC 606 and IFRS 15 are revenue recognition standards that consist of a 5 step model. Although the details of the steps are complex, the right system enables you to easily define and automate the processes. All while keeping manual effort to a minimum. Let’s break down the 5 steps of revenue recognition and learn how they’re simplifying compliance by providing opportunities for automation.
- Step 1: Identify the contract with a customer – With an account management system that features real-time contract management, you can easily define the terms of the contract. This is true for even the most complex deals.
- Step 2: Identify the performance obligations in the contract – You need to take performance obligations into consideration, regardless of whether they were entered manually or provided by another system. Taking the manual effort out of this process requires that all of your critical systems are seamlessly integrated with your billing platform.
- Step 3: Determine the transaction price – With nearly unlimited pricing models at your disposal, your billing system should allow you to easily modify pricing structures.
- Step 4: Allocate the transaction price – To allocate the price according to performance obligations (stages of completion), your system should allow you to quickly and easily define revenue milestones.
- Step 5: Recognize revenue when (or as) you satisfy a performance obligation – To recognize revenue once performance obligations are met, a rules-based revenue recognition engine that can be configured to recognize any pricing model will ensure that you’re always in compliance with ASC 606 / IFRS 15.
As you can see, ASC 606 and IFRS 15 define the steps to automate your entire revenue recognition process. While enabling you to reduce manual effort and errors. When choosing a system, remember to look for three key factors. First, you need to ensure that it can simplify the financial period closing processes. Second, the system should associate closing data to your general ledger. Third, the system must recognize different forms of payment processing.
5 Steps of Revenue Recognition Automation
Manually handling billing functions is difficult. Not to mention it can be time-consuming and error-prone. You need the ability to automate critical payment processing or data synchronization with outlying financial systems. BillingPlatform lets you assign your financial transactions and execute revenue recognition in real-time, as events happen. To illustrate, here are 5 steps on how BillingPlatform’s automation will simplify even the most complex revenue recognition.
- Step 1: Our Revenue Recognition solution lets you associate any data element in the system with your general ledger based on revenue recognition rules. You can apply highly specific logic to real-time transactions to automatically ensure up-to-the-minute compliance with revenue recognition requirements. With this level of configuration and automation, you gain the freedom to be more strategic, timely and accurate in your financial reporting.
- Step 2: Speed up your financial period closing processes. Real-time general ledger transactions and recognized revenue events should integrate into downstream enterprise resource planning (ERP) and accounting systems. To do this, you first configure your chart of accounts by simply specifying the name, hierarchy and account type. Now you can create a general ledger account hierarchy that consists of all relevant general ledger accounts in your organization.
- Step 3: Configure your general ledger assignments and revenue recognition rules. The right tools will let you define the structure and logic for point-in-time, scheduled or obligation-based revenue recognition.
- Step 4: Leverage the platform to dynamically allocate the transactions’ general ledger date, currency, and amount to specific debit and credit accounts. You can indicate how and when revenue will be recognized. Simply specify the type of revenue recognition rule, the timing of the revenue recognition event, and the interval on which the recognition rule will be assessed.
- Step 5: Once your general ledger accounts and revenue recognition rules are configured, BillingPlatform handles all of the scheduling and assignments. You can view your transactions, forecasts and allocations using configurable pages and reports. In addition, you’re able to export your transaction reports in any format for downstream accounting integrations. Finally, if needed, you can manually modify general ledger assignments using simple, built-in tools.
With our platform approach, you can configure exactly what you need for compliance, as well as your business strategy. BillingPlatform gives you a solution that combines billing and revenue recognition in a single solution. This enables you to shave days off your closing process. When you partner with BillingPlatform, you can be confident that your reporting and audits will always be accurate. Reach out to our team today to learn more.