SaaS Revenue Recognition: Demystifying The Concept of “Earned” Money
The idea that a company generates revenue at the time it receives cash is far outdated. Even more so for the businesses in the Software-as-a-Service industry. Instead, the accrual accounting principle known as “revenue recognition” is now under the spotlight. Revenue recognition determines when a certain company should record its revenue on its financial statements. The SaaS revenue recognition software is pivotal to businesses as it empowers them to record revenue free-of-error in subscription-based models.
But, first things first.
What is Revenue Recognition?
Simply put, revenue recognition pertains to the notion that a company’s revenue is generated or “earned” when it has fulfilled its obligation to its customer. This is in stark contrast with the traditional cash-based accounting which counts revenue at the time of the sale, or when the payment is received by the company.
Why does the cash-based accounting lag behind? It is flawed because it recognizes revenue when cash is received, not taking into account whether the company has fulfilled the customer’s needs by that point. This results in either of these:
- Exaggerating the company’s performance by overlooking any liabilities encountered after the completion of payment.
- Belittling the company’s performance in the case of late payments, even when the company has fulfilled its obligations.
To avoid such mishaps which reduce the credibility of the company, the revenue recognition SaaS is what you need.
The SaaS revenue recognition principle works in tandem with the Accounting Standards Codification (ASC) 606. It attempts to standardize the process of revenue recognition through a five-step model:
Identification of the Customer Contract
A customer contract becomes legally binding when it meets certain requirements. In case of a subscription service, the invoices would stand as contracts. A B2B SaaS revenue recognition software enables the service provider to set contract criteria, for example, pricing, date and time of product delivery or service activation, KPIs, payment terms and other such details.
Identification of the Performance Obligations
Performance Obligations are the promised services which the company has to provide to its customers as per contract in exchange for payment. SaaS businesses usually lend their customers software access for an agreed time frame. If the payment is received before the obligation has been fulfilled, it comes under unearned or “deferred” revenue.
Determination of the Transaction Price
The transaction price is the payment that a company expects to receive in exchange for their services. The subscription based businesses entertain various pricing factors when considering the transaction price. For instance, fixed and varying fees, usage-based fees, discounts, rewards and more.
Allocation of the Transaction Price to the Performance Obligations
A single contract may promise several performance obligations. A company allocates a certain price to each of these obligations depending on their value. This allocation can vary according to the customized pricing packages a company delivers to its customers.
You have done your part.
Let SubscriptionFlow take it from here!
subscription management software.
Recognition of Revenue as the Performance Obligations Are Realized
The companies recognize their revenue as soon as they succeed in delivering their performance obligations and satisfying their customers. For SaaS businesses, the revenue is recognized throughout the service access interval.
Gear Up With SubscriptionFlow’s SaaS Revenue Recognition Software Today!
Now that you have caught up on the basic principles of revenue recognition, it is time to delve into the perks our revenue recognition software has in store for your business.
Automate your Revenue Recognition Journey
SubscriptionFlow’s SaaS revenue recognition software furnishes you with modern revenue recognition tools which are built to operate in a complex financial landscape. It automatically and accurately assesses and presents your revenue, saving you the hassle of manual calculations. The software qualifies you to make automated allocations and makes it possible to predict your revenue by reporting and forecasting in real time.
See Through Your Performance
The SaaS revenue recognition software enables you to gauge the financial performance of your business by documenting your revenue dynamics over time. Compare and contrast your existing financials to those of the past to get a better understanding of your business’s financial health, and make informed strategies to steer your revenue toward growth. Using the insights supplied by the revenue recognition software, weigh your business performance precisely against that of your competitors and identify areas of improvement.
Accelerate Your Operations
With our B2B SaaS Revenue Recognition, streamline multiple services and configurations smoothly and timely. Control high-velocity subscriptions conveniently, and hasten your revenue recognition processes. Get a timely and accurate recognition of your revenue and match it to your company’s expenses.
Facilitate Recurring Payments
The revenue recognition SaaS can allow your business to track the revenue collected through recurring payments and equips you with customer analytical tools by generating visual custom reports, so that you can launch effective customer retention campaigns.
Deflect Churn
Use revenue recognition SaaS to transform your one-time customers into lifetime buyers by identifying customer-favorite offers and tailoring offers to individual consumer needs. SaaS revenue recognition gears you with consumer insights to empower your business strategies for upselling and cross-selling your services. Give your customers access to loyalty premiums and full-time consultation to encourage renewals.
Flaunt Transparent Accounting
Revenue Recognition SaaS grants you access to transparent accounting whereby your company can accurately present its financials and revenue growth. It improves your company’s credibility for external stakeholders, and attracts long-term investors, uplifting your financial health.
Boost Your Visibility
Our revenue recognition software offers you extensive visibility into the whole of your revenue recognition process, enabling you to forecast and recognize your revenue at the right time. SubscriptionFlow’s revenue recognition software is flexible and adapts to changes in accounting regulations.
Globalize Your Business Expansion
Adopting the revenue recognition SaaS assists you in upscaling your business to meet global compliance requirements. It lets you offer a broad range of payment methods to your customers, and enables you to deal in the currencies of your choice. Mechanize your revenue calculation process and let your business flourish rapidly.
Conclusion
Revenue Recognition is a key concept in today’s financial landscape. Instead of counting on the traditional notion of cash-based accounting, SaaS businesses keep themselves relevant to the global financial requirements by incorporating the principles of revenue recognition. These principles declare that a company ‘earns’ revenue only when it fulfills its performance obligations. In the light of the advantages associated with this practice, SubscriptionFlow offers its SaaS revenue recognition software equipped with advanced revenue recognition tools. This software empowers businesses to automate and accelerate their revenue operations, boosting their visibility and business growth among other benefits.
