The move to recurring revenue business models, such as subscription and consumption billing, coupled with recent changes in revenue recognition accounting guidance from ASC 606 / IFRS 15 provide a compelling event to reassess back-office infrastructure. For many companies, the cloud is an attractive option for the migration of their revenue management systems. There are a number of points for companies to consider before moving to a cloud-based infrastructure.
Over the past few decades, the needed level of automation and agility for revenue management could be achieved through on-premises install of ERP systems. These systems are wide in functionality, but do not go deep in terms of features. For many companies, this resulted in the need for software customizations to fill functionality gaps, with each new business initiative requiring customization.
In parallel with the above, many companies seek to control cost and drive efficiency by moving on-premises applications to the cloud. There is an incredible benefit to cloud solutions, including security, backup, disaster-recovery, scalability and the ability to support complex functions and configurations. There are two cloud models to consider:
An architecture in which each company using the application has its own environment.
A multi-tenant cloud architectures vary, but typically a set of application servers serve many companies. The Database server is typically separated with each company having its own logical database server (to ensure security and privacy).
The single, biggest virtue of a single-tenant cloud is that it does provide the ability to customize. Because each company has a dedicated server or set of servers, customization of one company’s application will not affect others running in the same cloud.
However, this virtue may be the greatest negative in disguise for the very reasons described above. Despite being in the cloud, a single-tenant system will likely experience the same vendor and version lock-in, loss in stability, and growing cost to maintain as described above in the on-premises days.
In the case of multi-tenant cloud systems, while some customization is possible, it is significantly downplayed. It is the task of the vendor to support the necessary requirements for automated processing out of the box. If this can be done, then upgrades can occur via a ‘Continuous Release Process’.
A ‘Continuous Release Process’ involves a highly automated release of new functionality to the entire user community. The release occurs typically first to all customer test environments, and later to all customer production environments for each release. Because the release process is automated, more releases can occur, meaning that each release represents a much smaller progression of the application codebase. Also, because the release is standardized, meaning no customizations, vendors can create substantial automated regression test processes, ensuring quality and stability.
A number of factors have influenced a growing trend in modern, back-office architectures. As discussed, tremendous efficiencies are gained by removing customizations and spreadsheets in favor of out-of-the-box processing in the context of a multi-tenant cloud environment supporting a continuous release process. At the same time, primarily due to the nature of subscription and consumption bill models and augmented by the need to balance optimal monetization of the client relationship with positive customer experience and satisfaction, it makes sense to move revenue accounting out of core ERP and closer to the CRM system that tracks customer sat. And, in fact, given the advantage of maintaining out of the box processing, it is quite possible the day of monolithic ERP is over. More companies are transitioning to a core General Ledger system augmented by hand-picked applications that provide the automation required specific to their business. Through this they are reaping tremendous gains in efficiency, compliance, and risk reduction along the way.
SOFTRAX provides an optimal solution to these challenges. It is a solution that has stood the test of time and is the selected approach of ERP providers themselves. The SOFTRAX Revenue Management System is a multi-tenant cloud application. It can handle all revenue management processing, from order processing to JE generation within a single, self-contained application. This includes order entry, one-time, milestone, subscription and consumption billing, subscription and contract renewal management, and revenue recognition against the new standard. The system establishes a single layer between CRM/CPQ and core ERP to accomplish the full revenue management task, thereby removing integration and data synchronization challenges. It provides a path to augment existing ERP to deliver enterprise-level functionality that streamlines the entire revenue management process without the need for large platform customization or replacement.
Do you know the five steps of ASC 606 and the impact of them on your revenue? The SOFTRAX ASC 606 Checklist can help.