Revenue Recognition

Advanced Revenue Recognition Software In Compliance with ASC 606 and IFRS 15

Few companies were prepared for the sweeping changes brought on by the ASC 606 and IFRS 15 guidance and were forced to move key revenue recognition processes to spreadsheets or customizations. The SOFTRAX Revenue Management System (RMS) helps manage even the most complex components of the guidance, through a multi-tenant cloud software solution that increases back-office automation to streamline every aspect of revenue recognition. Now companies can efficiently and effectively manage complex regulations and gain unprecedented visibility to business performance.

Video Transcript

The International accounting guidance of ASC 606 and IFRS 15 regulate how revenue is recognized for contracts with customers. At its simplest, when you sell a service or product, you recognize revenue at the point in time when it’s delivered or evenly over the duration of the contract. But business and contracts aren’t that simple. For example, a SAAS business may bundle a subscription service with other products and services, such as support, training, and even hardware over the duration of a contract. And, they may offer a discount as part of a sale. This makes revenue recognition much more complex.

The ASC 606 and IFRS 15 revenue recognition standards include a five-step process. Let’s look at each step and how the SOFTRAX Revenue Management System (or RMS) helps you comply with these regulations without the need for manual processes, spreadsheets, and workarounds.

Step 1: Identify the contract with the customer. In SOFTRAX RMS, you can easily and automatically import data from your contracts directly from your ERP, CRM, CPQ , or any source system without the need for customizations. Your contract outlines the payment terms and how your business will transfer the goods or services to the customer. These form the basis of your billing and revenue recognition structure. For example, Corporate Wellness, a B2B wellness company, enters a 1-year contract to offer virtual corporate fitness and wellbeing services to its customer’s employees. The employer pays a subscription fee for each employee. 

Step 2: Identify the performance obligations in the contract. Before you can recognize any revenue, you must identify each distinct good or service that you made to your customer in your contract. These are known as performance obligations. The SOFTRAX RMS imports line-item data from your source systems and creates the appropriate performance obligations, also known as revenue items in RMS. You configure policies, or rules, for different types of contracts, customers, or products. These policies determine how revenue should be recognized and which general ledger accounts are impacted. You only have to set up your policies once. And then, the powerful and proprietary policy engine in RMS automatically creates revenue forecasts and assigns accounts based on your rules. For example, the Corporate Wellness contract includes four performance obligations. Each of these performance obligations may need a different schedule for revenue recognition and method. For example, Corporate Wellness recognizes the amount from pedometer devices in total on the date when they are delivered to the customer. But they recognize the amount for the app each month over the duration of the contract.  And the amount from fitness classes based on usage. Some items in fact represent multiple performance obligations and need to be unbundled into multiple items for revenue recognition purposes. For example, support services are unbundled into account management and end-user support services and recognized over the duration of the contract.  

Step 3: Determine the transaction price. You must next determine what is the transaction price of each performance obligation. A customer may pay a set amount for a bundle of products. Or, a customer may pay a variable amount based on usage, or even both. In addition, if a contract includes variable consideration in the form of discounts or incentives, you need to estimate the amount of variable consideration that you’re entitled to. For example, Corporate Wellness bundles several products and services in its one subscription fee. Each product and service within the bundle has its own value.  

Step 4: Allocate the transaction price to performance obligations. With SOFTRAX RMS, you configure how to calculate the standalone selling price (or SSP) for each of your revenue items with price books. And then with our fully automated policies, you configure how allocations are performed for different products, customers, and contracts. You can allocate revenue across a group of performance obligations using different methods, such using a relative, residual, or multi-step. You can even exclude some performance obligations from being allocated. Over time, you can manage contract changes with the RMS automated contract combination and modification policies.  These enable you to perform prospective and retrospective reallocations of revenue as well as cumulative catch ups (or downs) for any non-distinct performance obligations. 

Step 5: Recognize revenue when or as each performance obligation is satisfied. With SOFTRAX RMS, you configure your policies once and let automation and your revenue recognition rules perform the calculations for you. You can review your revenue activity and run reports to track your recognized and forecasted or deferred revenue. SOFTRAX RMS simplifies your end-of-month activities. When you generate journal entries, amounts are moved to and from your configured accounts. You can then import the RMS journal entries into your revenue recognition journal. Because SOFTRAX RMS is linked to and imports your transactional data, you can always adjust and recalculate your revenue forecasts as needed. You can pause and resume forecasts, apply percentages of completion, usage, or milestones to revenue items. Or you can cancel forecasts and manually apply carves and perform allocations for any exceptional situations.  

Are you ready to explore how YOU can use SOFTRAX RMS for your billing and revenue recognition? Contact us at sales@softrax.com to schedule a 30-minute consultation. 

Streamlined Revenue Recognition

  • Automate, comply, and simplify ASC 606 and IFRS 15

  • Increase back-office automation to streamline revenue recognition

  • Eliminate spreadsheets and workarounds

Download the SOFTRAX RMS Revenue Recognition Data Sheet to learn more.

The Benefits of the Right Revenue Recognition Solution

Extended Capabilities without spreadsheets

SOFTRAX RMS is an automated, cloud-based solution that eliminates spreadsheets and workarounds, reduces human errors, and increases the agility of your back office.

Focus on Strategy, Not Tactics

SOFTRAX RMS automates your most complex revenue management processes so your finance team can focus their skills on strategic analytical tasks, confident that day-to-day tactical functions are being executed efficiently, accurately, and compliantly.

No Rip & Replace

SOFTRAX RMS easily integrates with your existing ERP, CRM, and CPQ systems so you can implement the most robust management platform without the need for large platform customizations or replacement.

Robust Automation

SOFTRAX RMS introduces enterprise-level automated functionality to streamline the revenue recognition process, automate the complex requirements of ASC 606 / IFRS 15, and advance your path toward continuous accounting.

Meeting the ASC 606 and IFRS 15 Standard Across Verticals

For some verticals, ASC 606 and IFRS 15 represent a high-level complexity. These verticals need to determine and manage standalone selling price (SSP), proportionally allocate transactions against SSP as well as handle contract modifications and conversions, variable consideration, material rights, and the significant financing component. These factors represent extreme complexity in processing, particularly where the goal is complete automation, including through change events. SOFTRAX RMS can handle these scenarios, making even the most complex scenario manageable and compliant.

SOFTRAX has more than 25 years of experience in providing billing and revenue recognition solutions, enabling us to offer the industry’s most comprehensive features. Our legacy gives us an in-depth understanding of customer needs, pain points, and areas of growth across a number of industries. SOFTRAX RMS is the only multi-tenant cloud platform supporting sophisticated billing and revenue recognition in a single application.

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The Right Solution for Evolving Revenue Recognition

ACHIEVE COMPLIANCE

Systematize compliance with proactive enforcement of complex revenue recognition accounting guidance.

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FACTOR THE ACCOUNTING

Automatically calculate complex accounting, including allocation, scheduling recognition of revenue, carve-outs, triggers, and more.

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MULTIPLE POLICY SUPPORT

Automatically enforce two or more revenue policies, including ASC-605, IAS-08, ASC-606/IFRS 15, non-GAAP, management, reporting, and what-if books.

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INTEGRATION WITH YOUR ERP

Seamlessly integrate with more than 200 ERP and financial systems to provide a complete revenue management solution that addresses all aspects of revenue in one place.

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STRONG SECURITY AND CONTROLS

Granular settings to control who can view and edit transactional data and recognition policies at every level of the application.

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ENSURE COMPLIANCE

Automate all aspects of ASC 606 / IFRS 15, including complex contract modifications and combinations, revaluation of variable consideration, materials rights, significant finance component, and more.

What Clients Say About Our Revenue Recognition Solution

FAQ

The revenue recognition accounting principle outlines when revenue can be accounted for in financial statements from the sale of goods or services. Revenue recognition ties into a company’s financial position and reflects profitability, but it follows a set of rules and practices. For publicly traded companies in the United States, revenue recognition is a part of the Generally Accepted Accounting Principles (GAAP) issued and maintained by the Financial Accounting Standards Board (FASB). U.S. government agencies also use GAAP, and many private companies use GAAP to standardize their financial reporting.

At the basis of revenue recognition is the realization, or accounting, of revenue, that occurs when goods or services are transferred to customers. FASB enacted ASC 606, which provides a five-step process for recognizing revenue that is tied to the customer contract. ASC 606 comprises:

  1. Identify the contract with the customer
  2. Identify the performance obligations in the contract
  3. Determine the overall transaction price
  4. Allocate the transaction price to the performance obligation(s)
  5. Recognize revenue when performance obligations are satisfied

Revenue recognition, done properly, reflects the financial state of a company. It involves the following elements:

1. Accurate Financial Reporting: Proper revenue recognition results in financial statements that accurately reflect the company’s fiscal performance. These statements are needed for company officers and others to use for forward planning of the company’s goals, products, and staffing. They are also crucial for investors, creditors, and other stakeholders to have a current and true sense of the company’s fiscal health.

2. Compliance: Adhering to revenue recognition principles ensures compliance with ASC 606 / IFRS 15 and other provisions, which are required by regulatory bodies and financial institutions. Compliance reduces the risk of penalties, fines, and legal issues stemming from inaccurate financial reporting, and it also shows employees, customers, shareholders, partners, and others, that that company takes its financial reporting seriously.

3. Comparability: Consistent revenue recognition practices enable analysis and comparison of financials across companies within the same industry. Investors and analysts rely on this comparability to evaluate relative performance and make investment decisions.

4. Risk Management: Proper revenue recognition helps identify potential risks related to revenue streams, such as uncollectible accounts receivable and contract disputes. By recognizing revenue appropriately, companies can mitigate these risks and maintain financial stability.

5. Investor Confidence: Transparent and consistent revenue recognition practices enhance investor confidence in the company’s revenue reporting, leadership, and future.

As a multi-tenant cloud-based solution, SOFTRAS RMS automates every aspect of revenue recognition, including compliance with ASC 606 / IFRS 15. In addition to helping SaaS companies and subscription businesses meet compliance reporting, SOFTRAX RMS offers unprecedented visibility into the revenue that drives business performance. With SOFTRAX, a company’s finance team can focus their skills on strategic analytical tasks confident that day-to-day tactical functions are being executed efficiently, accurately, and compliantly.

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