Recognizing revenue is one of the most important accounting needs for a SaaS business plan. Since you often bill for services that won’t be delivered for a while, when revenue is recognized can have a big impact on your quarterly and yearly revenue models. In this post, we’ll look at revenue recognition in more depth and talk about SaaS Billing Software Can Streamline Your Revenue Recognition Processes.
What is SaaS Billing Software?
Revenue recognition software is a piece of software that helps your business keeps track of finished sales and turns them into revenue, which is then shown on your financial statements.
Here’s an example of SaaS Billing Software Can Streamline Your Revenue Recognition Processes:
Let’s say you were in charge of accounts for a company that sold subscriptions. On October 1, 2021, a customer paid $29.99 for a one-year subscription. Can the whole $29.99 be counted as income for Q4 2021?
In fact, some of that has to be counted as delayed income. From October 2021 to September 2022, you will make $2.50 each month. You have to count the money as income as the job is done for the customer.
Soon, we’ll talk about the details of SaaS Billing Software Can Streamline Your Revenue Recognition Processes. But before we do that, let’s put accounting rules aside and look at what your SaaS company can learn from revenue recognition.
What are the benefits of usage based billing software?
By creating a revenue recognition system and using software to automate the process, you can make sure that your business is following the law. But that’s not all. SaaS revenue management tools can also help you run your business more efficiently.
Some of the ways it can do that are the following:
- A revenue recognition system can help your product strategy by automating processes and saving your teams time. Your salespeople and accountants will be able to focus on more important tasks if you use software for revenue management that simplifies tasks like logging customer sales data.
- By using income recognition, you can match the time you make money to the time you give services. You can use this knowledge to hire seasonal workers when you really need them.
- You can use your MRR to get a good idea of how your business will grow in the long run because it won’t change much based on when you charge.
- A revenue management framework helps your accounting team keep track of billing, cash flow, and lost income. It does this by making it easier to calculate complex revenue numbers. The improved precision also makes it less likely for people to make mistakes when doing calculations.
What is SaaS Billing Software Can Streamline Your Revenue Recognition Processes, and what does SaaS as an example?
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In most situations, SaaS revenue recognition is pretty simple. But occasionally, things might get tricky—especially if your pricing model is intricate. Here are a few situations you might run into:
Only the noncallable component of your contract may be recorded as revenue under ASC 606. Returning to the example, suppose you let subscribers to cancel at any time and obtain a pro-rata refund or a refund based on the balance of their membership policy. In that situation, the agreement would be noted as a daily contract with daily revenue of about 8 cents.
In SaaS deals, there may be setup costs. Under the old accounting standard, these fees were recorded at the end of the initial contract term or, if that was longer, at the end of the projected customer relationship term. But sellers only have to follow the ASC 606 accounting standard if the client has a “material right” to extend the contract past its initial term.
Here is a webpage from Deloitte that takes you through a few possible situations.
As you can see, making decisions about how to count SaaS income means making choices. If you are worried about a certain situation, you should talk to a good attorney.
Discuss how SaaS Billing Software Can Streamline Your Revenue Recognition Processes
If you don’t want to get stuck with SaaS income recognition, you need a subscription revenue management solution that makes the process easier. You can do it with the help of Recurly, the best software for managing and paying SaaS subscriptions.
In our billing program, there are six different ways to track your SaaS income. Our platform is flexible enough that you can easily meet with ASC 606 and protect your SaaS business from changes to accounting standards in the future.
Conclusion
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