Subscription businesses are common in a variety of industries. Newspapers, magazines, and even software service providers routinely employ subscription business models, where they charge an annual fee in return for the offered service. There are several successful companies these days that employ this model, requiring the use of subscription revenue recognition tools. Here are the advantages of using revenue recognition automation in subscription-based businesses:
Better Lifecycle Management
The most important aspect of subscription revenue recognition is to ensure that you can manage the entire lifecycle of your service. Your offered service is usually delivered monthly, while the actual revenue that you receive is usually in the form of an annual subscription or sometimes even in a longer time period.
An automated revenue recognition software tool can ensure that the principles of ASC 606 can be followed by performing recognition by ensuring that expenses and profits can be accrued based on the amount of performance, which has already been delivered to the customer. Technology selling certainly benefits with this automation as businesses can accurately record the current status of their financial situation, regardless of the situation of the actual payments that they have received from the clients.
Improved Service Knowledge
With the ASC 606 standard in place for the older standards, subscription revenue recognition can improve considerably. This occurs because you are aware of the current position of your service delivery. This information is required when performing recognition with this new, universal standard. You can only record payments and compensation, in terms of the delivered performance in the form of goods and services already rendered to the customers.
It can be hard to find out the required performance delivery in subscription businesses. An excellent advantage of using a SaaS revenue recognition solution is that you can allow your customers to check in online and record the services that they have employed. A software solution can also track the pay per use financial model and allow your business to record the exact financial accounting details according to the applicable standards.
With automation, the speed of these recognition activities is significantly higher. Your accrued calculations are precise and the business is always ready to take the next step in its subscription business model.
Compliance is always important when performing the required revenue recognition for financial statements. With subscription businesses, it is often difficult to ensure that you are complying with the applied standards. The use of automation ensures that all your transactions are recorded using a system, which is capable of producing SC 606 compliant financial records. With the right input to the software, perhaps using a SaaS tool, it is possible to comply with the FASB, while reducing the tasks of performing the accounting management of your business entity.
Performance obligations are difficult to realize in subscription businesses. CallidusCloud understands the need for offering support for subscription revenue recognition needs. Performing subscription revenue recognition is certainly easier with cloud-based tools that are faster, more efficient and allow business entities to remain compliant.
Webinar: Accounting for Commissions and Other Contract Costs under ASC 606
In this webinar, Matt Svetich of Effectus Group will discuss what to consider when preparing for the commission accounting changes under ASC 606 and ASC 340-40.
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