How to Overcome Revenue Recognition Obstacles

Separate the data

The lack of proper data segregation and organisation is often at the foundation of revenue recognition issues. The use of billing, revenue accounting, management, and other tools results in mixed data from several sources. And you'll need to combine and aggregate the information so that the revenue recognition process runs smoothly and without ambiguity. This approach will also allow you to analyse data and related metrics whenever you desire readily. If you've already invested in a high-quality automated billing and accounting system, you won't have to worry about this.

Recalculate Revenue by the Contract:

To ensure a seamless revenue recognition process, stay up to speed on the newest contract model and follow it to avoid any potential errors. One of the most typical issues that businesses, particularly subscription-based businesses, encounter are keeping track of all the contract changes or revisions made by subscribers at various points of the customer lifecycle.

It's vital to remember that such changes don't count as a new contract under the new revenue recognition standard. You must examine them to see if they are distinct and can be assigned appropriately. And the only way to do so is through automation.

Concentrate on event-based Revenue:

Revenue is triggered when acceptance, consumption, distribution, and upgradation occur. Hence timing is crucial. And, as you might imagine, keeping track of all of these without automation is nearly difficult.

Calculate and distribute the standalone selling price:

The standalone selling price (SSP) is when a company sells a promised good or service to a single consumer. It is computed by subtracting the total transaction price from the sum of all observable SSPs of other items or services.

SSPs are calculated by hand. Depending on the size of your firm, the number of transactions, and the number of consumers, complying with the new contract could take days or weeks. Automated tools can also help in this situation. Begin to Choose one that provides smart recordkeeping, automates all connected operations, and provides extensive insights into critical parameters to make your job easier with your billing system.

Don't forget about contract costs:

It is critical to assess contract costs since organisations frequently overlook this step, resulting in revenue recognition issues. All revenue-related expenses, such as sales commissions, COGS (Cost of Goods Sold), cost of sales, and others, must be considered at the appropriate time. Here are a few pointers to help you prevent any difficulties:

Ensure that the IPO (Initial Public Offering) or other exit alternatives do not experience any delays.
To avoid spreadsheet errors, automate the billing to revenue computation procedure.
Adopt automated technologies that can work in tandem with changing accounting guidelines or contracts.
Always double-check each step before completing it.

To sum it up:

Every firm aspires to have a good revenue recognition process that is free of obstacles. Your billing, accounting, and other associated software all play a part in this. While automation eliminates half of the problems, you must choose wisely. Always select versatile, easy-to-integrate, and scalable tools, and aim to combine several solutions into a single system to avoid the burden of managing many techniques on your platform.