ASC 606 - A Customer Story
We gather many insights from customers as we go about solutioning their revenue recognition automation. ASC 606 was billed as the reason everyone wanted to automate. But really, it turns out, it has just been a catalyst or justification for finance teams to seek relief from increasingly manual tasks.
Enterprise business trends are skewed towards high value contracts with less standardization, SAAS business models, and sales that are incentivized through packaged hardware, software, and services. Personalized, unique, bundled contracts. What does this mean for your revenue team? As one customer said, “We have become bean counters.” This needs to change if a company wants to scale revenue - and don’t all companies?
Is automation really the solution?
Is revenue automation the solution to manual operations? Well, it depends. We found that most revenue departments have been making do with their existing ERP and billing systems alongside spreadsheets, analyzing each line at the end of the month to confirm the correct treatment. Essentially, automation that isn’t particularly automatic.
What happens after the financial year end?
With the additional workload of ASC 606, the conclusion is generally drawn that the current way of managing revenue recognition is not sustainable and it is likely too late to automate if you have an early year end. Teams can get through the first output with sheer 'brute force' as many are calling it. In fact, one Big 4 company told us they have stopped doing solution evaluations in the U.S. and are instead offering teams of people to come in and do a workaround. Teams of people. That is what it takes to do the work for ASC 606. What does that cost? What will it cost year over year? More importantly, are you prepared to put in the effort required every month/ quarter/year?
Moving beyond bean counting
Once the ‘brute force’ effort is over, revenue recognition automation will give your team life and they can move away from being “bean counters” to becoming strategic revenue managers! We recently sat down with a new customer to discuss their path to revenue recognition automation and empowerment.
The customer story - build vs. buy with ASC 606
The customer (sorry no names, this is a large, public company) was large enough that they could support an internal build of their own financial software system. In fact they had built in house for ASC 605. Initially this worked well with a one-person team managing the software. Over time they realized the software, coupled with their ERP and billing system, had significant weaknesses. They weren’t handling 100% of their revenue automatically. Ratable revenue wasn’t handled, and the IT support for these tools was dependent on one person. Unfortunately that person left the company. The next person had to learn all of the coding and understand how the revenue team used the system. This took 12 months. This became an IT dependent point of vulnerability - a single subject matter expert managing all of the rules and coding for the revenue team.
ASC 606 was going to compound existing issues, a whole new software system needed to be built and IT suggested they find an external vendor. The team just wanted freedom from manual processes and a system that did what it was supposed to do, recognize revenue.
“We really wanted to take the approach that these guys (revenue team) are in control. That you are not building a lot of custom coding behind the scene to create very specific scenarios because you coded it…”
-Senior Revenue Accounting Manager
Finding an automated rev rec solution
A team was put together to find a revenue recognition solution. The limits to most systems were obvious, when it came to managing bundled contracts they failed. It seemed there was a choice between full automation coupled with spreadsheets to manage and separate multi-element arrangements (MEAs), or a fully customized enterprise software that would take, at minimum, a full year to implement. Who would manage this - IT or the vendor? And updates? I think we all know how updates go for enterprise software. At their fourth demo they discovered Aptitude RevStream and knew they had discovered the right solution. Aptitude RevStream would empower their revenue team with solid, intelligent, tried, and tested software.
“We want it to be configurable so these guys can manage it. And if it changes, or they find an error, they can quickly adjust and change it. Or as we get a new contract, create a new rule and have the tool work.”
-Senior Revenue Accounting Manager
Compliance doesn’t stop at ASC 606
As GAAP moves closer to IFRS, finance and accounting teams are going to see more compliance changes. Operating in a cloud environment was a high priority for our customer, they wanted those upgrades faster. Relief from the current high touch environment was needed. With ASC 606 compliance in mind they needed a scalable solution that could handle complex MEAs, forecasting, and improve accuracy. This is where Aptitude RevStream was able to add value:
100% in the cloud revenue automation. Lightning fast speed to power through data and reporting and the benefits of scalability. SOC 1, type 2 compliance ensures security - crucial for a public company.
The Arrangement Manager summarizes performance obligations (POBs), balances, and arrangements onto one screen, with the opportunity to drill down as needed to check for accuracy - freedom from spreadsheet line-by-line analysis. Add in the option for real time reporting - the CFO started envisioning all the business decisions this could empower!
Bundles within bundles is often the hallmark of a SAAS and MEA environment. Having a system that automatically debundles each arrangement gave the revenue team the relief they needed. No more spreadsheets!
Unbundling via rules and POBs that the revenue team could actually configure themselves was exciting. Customizing on the go - changing rules now takes just a couple of minutes. This was a game changer for them.
The ability to automate smaller, standardized contracts was expected. What was not expected was the ability to stop and inspect the 40% of contracts that were unique and had previously required such a high touch. Once confirmed as accurate, or adjusted as needed, the automation could continue. Automation with empowerment.
What are your options?
This customers story is not particularly unique. You may recognize many of their issues and perhaps even have a similar business model. The question that we always ask is, what took you all so long to realize there was a better way to automate your revenue recognition?