Whether you’re struggling to comply with the accounting, financial reporting, and revenue recognition from IFRS 15, or just want to refine the way you work, this blog is for you. Read on for five quick tips to help you conquer IFRS 15.
1. Remember it’s a team effort
IFRS 15 and revenue recognition isn’t just another accounting exercise. Sales and finance need to work together on the same goal: earning and retaining customers and revenue.
Depending on the size of your company and customers, and the maturity of your market, you might have standardized your contracting and sales concessions.
Accounting loves this standardization for its efficiency. Sales needs flexibility to close the deal. Both are important, and both departments need to work together to find the right balance.
2. Review your cross-team processes
To get a stronger understanding of your company’s processes and systems, you need to map them out first.
Building the quote-to-cash process is a critical early step. High-volume companies manage this through the payment gateway. Companies with larger average contract value (ACV) often choose a CPQ (configure, price, quote) tool to bring automation to the quoting process to maximize consistency, up-selling, and predictability.
How well you automate these CRM processes is key, as is the way you integrate this data into your financial system. You need to be able to immediately bill, recognize, and report on it all, so thinking through the process mapping is a crucial cross-departmental process.
One example of something companies often struggle with is capturing their contract information in their CRM. There is a lot of information that needs to be included in a contract and open text fields in a CRM can make transferring that information to another system difficult. You can’t import it, analyze it, or report on it.
By working cross-functionally with different teams, you can scale and automate processes. This kind of collaboration allows you to bring in all the information you need for IFRS 15 into your CRM. From there, it can be seamlessly integrated into your financial management system.
3. Read the fine print
Get familiar with performance obligations. A performance obligation is any goods or services promised in the sales cycle. These are often explicitly stated in an agreement but can sometimes be implicit and woven into a common business process.
Keep in mind the small print in the free-text fields in any sales orders. Digging into the promises the company made as you figured out product-market fit can take time, and there are often free-text fields on the contract.
Finding the implicit promises that have been made can be even more time-consuming. Examples include offering free passes to a customer conference, or training at that event. This ties back to tip one, working together as a team on the common goal of maximizing customer value and earning the revenue that comes from it.
The most critical component having a strong sense for your contracts. Like open text fields in a CRM, some contracts might have additional clauses written in the margins in pen.
Find out exactly how many non-standard contracts you have, and how many non-standard clauses you have within those contracts. For example, let’s say your standard practice is to allow customers 30 days to pay, but one customer asks for six months. As more of these different contracts crop up, you should start to think about classes of customers and how to handle their contracts and revenue recognition differently.
4. Build a deal desk
As these pieces come together, a new team that pays attention across both sales and the finance team has emerged, the revenue operations team. It is a team to bridge both sales and finance to work towards the same goals, with communication to be a critical linkage in the sales, contracting, and revenue recognition processes.
A deal desk or sales operations desk is there to help sales and finance get on the same page. In areas where these teams might feel some friction, a sales operations team can help keep things running smoothly and keep contract standards in place.
5. Automate in five steps
- Integrate order with financials: It all starts with a native integration with the likes of Salesforce.com and Salesforce CPQ. This allows you to seamlessly pass account and order or contract information, with real time syncing on the account master and product catalogue.
- Innovative usage and recurring billing: You can automate subscription and professional services billing across a wide variety of use cases—by users, module, product, type of sale, etc. This allows you to price your products based on the value you bring and the recurring use by your clients.
- One contract master: Having the billing line items integrated and automated means you can automate your revenue recognition, tracking the performance obligations and variable considerations over the term of the contract in IFRS 15. This allows you to understand the impact on revenue recognition and expense amortization, especially when it comes to commissions. One system of record means simplified recurring billing, better accuracy, and happier customers.
- Dashboards: When all this upstream work is automated, you can post to the general ledger with an unlimited number of dimensions, incorporating both GAAP and SaaS data from statistical accounts. This supplies the data for real-time SaaS dashboards, which is great because you’ll have the contract master record at your fingertips and can manage renewals and upsells tying back to the original contract. You’ll also be able to forecast billing, cash, and revenue in your FP&A budget and planning.
- Forecast the future across revenue, cash, and billing: This approach is very different from subscription-billing-only solutions that don’t let your forecast billing, revenue, and cash. It’s also different from other cloud financials providers that are order-based and have built complex revenue arrangements to compensate. This complicates the data model and forces manual reporting and forecasting. By knowing the amount, timing, and collection of cash from the contract, you can make data-driven decisions.
Want to know more? Take a coffee break and find out how Sage Intacct can help your business flow.