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How to improve revenue recognition in monthly management accounts

Accurate revenue recognition for accrued and deferred income is essential for performance analysis and forecasting via monthly management accounts. But many organisations still rely on spreadsheets and other inefficient manual processes for deferred and accrued revenue recognition.

Improve your revenue recognition

ScaleXP invoice line description

It may sound obvious, but the simplest way to increase accuracy and therefore usefulness, is to reduce manual data entry errors by automating repetitive processes. Frankly, spreadsheets will only get your organisation so far because they inevitably contain incomplete and outdated data that is difficult to share across teams or departments. It is not hard to see that as they are modified to include amended invoices or credit notes, it becomes increasingly challenging to ensure the entire organisation uses the most accurate and actionable information.

A joint study by IDC and Adobe found 76% of executive leaders consider disconnected document processes to be the cause of many  audit issues, adversely impacting revenue recognition. These issues are primarily due to incomplete, outdated, misfiled, or lost documents. 

A great example of how ScaleXP’s automation technology removes human error is the use of natural language recognition to identify multi period invoices, allowing the automatic spreading of annual, quarterly or other multi-month invoices by month. Data is updated daily to ensure you consistently have a current perspective of deferred and accrued revenue balances and have a current view of sales. 

Unlike annual financial statements, monthly management accounts aren’t compulsory. Yet, they provide invaluable financial insight to make data-driven decisions, the clarity of which depends on the quality of information relied on. 

Automating and digitising your accounting processes with ScaleXP’s adaptive algorithm addresses the inefficiencies associated with disconnected documentation and poor knowledge sharing by reducing manual workflows and associated errors. This directly translates to increased productivity and revenue growth. Research estimates small and medium-sized businesses within the UK could save £17,000 per year – the equivalent of 2.3 days per month – by embracing digital accounting procedures.

How to streamline revenue recognition and comply with IFRS

ScaleXP IFRS, GAAP, IFRS 15, ASC 606

Automate deferred revenue recognition and accrued revenue with ScaleXP, making it easy to audit and track revenue streams and overall financial performance. In addition to key KPI metrics including MRR, ARR, and customer lifetime value, ScaleXP provides instant access to monthly management account presentations, such as:

  • Highlights and challenges
  • Profit & Loss
  • Balance Sheet
  • Customer Detail

ScaleXP’s functionalities perfectly balance the needs of financial and accounting professionals with audit compliance obligations.

The core principle of both IFRS 15 and ASC 606 requires revenue only to be recognised when the goods or services are supplied to the customer at the transaction price. 

ScaleXP ensures compliance with revenue recognition under IFRS and GAAP accounting standards by automatically recognising revenue as it’s earned over the relevant period. 

Deferred revenue examples are common and are likely present in most, if not all, of your clients’ businesses. Any form of prepaid income where the associated goods or services are yet to be provided is deferred revenue and a liability on the balance sheet.

Revenue reporting in a SaaS business is a typical example of recording deferred income. Although a customer may provide an upfront payment for one or more year’s usage, the following steps are completed for the payment to be recognised in accordance with IFRS and GAAP standards:

  1. The SaaS business enters into a contract with a customer, which may be subject to change should the customer upgrade or downgrade their subscription.
  2. The performance obligations of the contract are identified. Revenue reporting in a SaaS business usually stipulates access to a service for a set period of time.
  3. The transaction price is set.
  4. The transaction price is allocated to separate performance obligations. As the obligations remain consistent for a SaaS business, the total contractual value is divided monthly over the agreed service period.
  5. Revenue recognition occurs as each performance obligation is met.

Revenue recognition in a SaaS business, like other industries, requires multiple steps and regular updates to record annual invoices and apportion income throughout the deferred revenue lifecycle. Upgrade from archaic spreadsheets to automate deferred revenue recognition and spread quarterly invoices by month. 

Avoid errors and lost productivity with ScaleXP, where changes to an invoice or credit notes are automatically detected by the system.

ScaleXP saves time and increases productivity by automating manual processes and providing inter-departmental access to crucial metrics and KPIs based on complete and current data.

Find out how ScaleXP automated revenue reporting can improve your business.  We connect to Xero, QuickBooks, Sage, NetSuite and many more to streamline revenue reporting.

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(Read more about Deferred revenue here.)

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