Revenue recognition is an essential accounting function for every Software as a Service (SaaS) company, particularly those that report to lenders, investors, and other third-party stakeholders. Cash and accrued revenue are entirely different. Businesses must understand each principle to ensure accurate and efficient bookkeeping. Monitoring recurring revenue can be incredibly challenging for SaaS businesses because they often offer various payment terms, billing variables, usage rates, platform packages, bundles, discounts, and specialized pricing for each customer.
Compass East helps improve your accounting functions with our comprehensive revenue recognition solutions. We take a bottom-up approach to your revenue recognition needs, offering an effective strategy when conventional accounting methods fall short. Because you rely on a steady revenue stream to grow, these solutions are critical to your SaaS company’s success.
Creating Reliable Reporting With Revenue Recognition
One of the core principles of revenue recognition involves identifying revenue when a business delivers a product or service to a customer based on the evaluation of the contract rather than the receipt of payment. Accounting Standards Codification (ASC) 606 is the industry standard that provides the general guidelines to recognize revenue from customer purchases.
The five-step model for ASC 606 involves:
- Identifying the customer’s contract.
- Recognizing the contract’s performance obligations.
- Determining the transaction price.
- Allocating the price to the performance obligations.
- Recognizing the revenue when the performance obligations are satisfied.
Compass East combines these principles with our own tools to identify your revenue and better understand your company’s cash flow.
Monitoring Your Cash Flow With Revenue Recognition Solutions
Proper revenue recognition is vital because it pertains directly to a company’s financial reporting accuracy. One of the primary reasons for revenue recognition is standardizing the revenue policies and procedures for business use. This standardization allows lenders and investors to compare the income statements of multiple companies, regardless of the various terms offered to customers. within the same industry.
Because revenue is one of the most significant factors investors use to measure a company’s performance, all financial statements must be reliable, consistent and accurate. Revenue recognition identifies the unique conditions of each customer contract to provide a more precise record of your monthly revenue.
Compass East offers revenue recognition solutions to develop more accurate revenue monitoring processes for your company.
Outsourced Revenue Recognition Solutions for SaaS Companies
At Compass East, we manage revenue recognition either with internally developed tools or with software specifically designed for SaaS revenue recognition like Maxio (formerly SaaSOptics). The tools we integrate into your invoicing workflow will create the necessary procedures to calculate consistent, accurate and reliable results.
If you operate a recurring revenue business like many SaaS companies, your customer contracts or service agreements might vary from those of other operations. The advisors at Compass East take a customized approach to each of our client’s frameworks to ensure your revenue recognition process reflects your specific contract management requirements. Whether you offer your customers multi-year agreements, annual contracts or another set of terms, our solutions will accommodate your needs.
Benefits of Revenue Recognition Services From Compass East
Compass East’s revenue recognition solutions address the variables surrounding your company’s recurring revenue. When you work with Compass East, you’ll experience benefits like:
- Higher accuracy: Conventional accounting methods often fail to meet the contract management needs of many SaaS companies, resulting in inaccurate monthly revenue reports. Our solutions deliver a more detailed account of your revenue to offer a better understanding of performance and growth.
- Improved consistency: Our software and management tools provide a repeatable and reusable solution. This consistency streamlines your accounting process while saving time without sacrificing accuracy.
- Maximum efficiency: Your SaaS company’s accounting processes require resources you can apply to future growth initiatives. With an efficient revenue recognition strategy, you can quickly meet your financial needs while focusing on more extensive projects to grow your business.
- Increased growth: When your company has a more accurate picture of monthly revenue, you can take a proactive approach to business growth. Whether you increase your number of clients or modify your existing budget, an effective revenue recognition solution will provide optimal results.
When considering the many benefits of our revenue recognition services, it’s worth taking the next step. Outsourcing your accounting requirements to Compass East will help you capitalize on the many advantages of contract management without hiring a dedicated in-house team to manage your workflow.
Your SaaS company can utilize our revenue recognition services alongside our many other financial solutions, like payables, receivables and advanced bookkeeping. Once you gain a clearer picture of your monthly revenue, you can benefit from our KPI development programs and cash flow management systems. We also offer SaaS companies 1099 management solutions and audit preparation services.