The new revenue standards are bound to have an impact on subscription management software 2019. The recent changes to revenue recognition standards have invited enough headache for finance department. You can expect a certain impact on the growth engines of any business and subscription-based companies are likely to face the major brunt. It all boils down to how you structure your subscription offerings, the type of contracts you plan to sell and how you recognize revenue.
It is high time that companies re-visite the way they are doing business today, how they plan to price in the future, and what needs to be done to meet the new revenue standards. SubscriptionFlow is ready to adopt the new revenue recognition standards. Here at SubscriptionFlow, our Revenue Recognition solution will meet the ASC 606 standards. Your business deserves to focus on growth without getting worked up about compliance.
ASC 606 executive summary
ASC 606 was put in place to simplify and harmonize revenue recognition practices. The reporting revenue is a critical metric for evaluating a company’s financial performance. It varies across different jurisdictions, industries and markets. As a result of these inconsistencies, incongruent accounting results are likely to emerge for economically similar transactions, making macro-level comparisons nearly impossible. To overcome this problem, new standards are introduced that helps companies to recognize revenue when goods and services are transferred to the customer. This amount is proportionate to what has been delivered at that point.
A five-step model has been devised that gives a summary of the process for recognizing revenue from contracts with customers:
- Recognize the contract with the customer
- Identify the separate performance obligations
- Determine transaction price
- Allocate transaction price
- Recognize revenue when (or as) a performance obligation is satisfied
What significant changes should subscription business expect from ASC 606?
A subscription business undergoes consistent changes in their customer’s subscription lifecycle. These take the form of an upgrade, downgrade, discounts, a mid-cycle cancellation and a refund as a result of dissatisfaction. When a business ventures out to expand their customer base, grow their business, retain revenue and scale globally, you need to consider all the changes to the contract and revenue recognition in the subscription lifecycle.
How ASC 606 will impact Subscription Management
ASC 606: Revenue from Contracts with Customers gives you an understanding of how revenue generated from contracts with customers is reported. Earlier, there weren’t any set guidelines that dictated how revenue was recognized. In the absence of the same, each industry came up with its own set of standards. This paved way for ambiguity where some industries reported higher revenue on the same income where the rest reported lower. ASC 606 streamlined this process so that same amount is stated across all industries.
Subscription companies operate on a different model where the customer may sign up for a yearly subscription but pay the complete amount at the very start. Although you will receive the entire amount but it will be recognized under specific conditions. These conditions or obligations are mentioned in your contract with the customer.
ASC 606 implementation is going to bring about adjustments in accounting practice for contingent and upfront fees, usage-based pricing, discounts, distinct performance obligations and much more. However, it is important to keep in mind that the new standard requires your company to report all the information which wasn’t being considered previously. Compliance shouldn’t happen at the cost of growth. We at SubscriptionFlow makes sure that the user has little to worry about when it comes to revenue recognition. Your system shouldn’t impose restrictions on your growth strategies. Let SubscriptionFlow perform obligations, allocations, and revenue distribution automatically.