Revenue recognition—the final chapter in part two of Gilles Muys’ Definitive QTC Guide discussing the place of quote-to-cash tools in business. Revenue recognition, like the sales cycle and fulfillment before it, is another crucial area where QTC tools are invaluable for automation and increased operational efficiency. It seems simple enough—the act of recording income. But any seasoned business leader can attest to how it gets far more complicated in practice.
Gilles takes a look at the practical application of revenue recognition, including when it should be recognized, who is responsible for the process, and what long-term impacts revenue recognition has across multiple departments. Most of all, Gilles discusses the role quote-to-cash tools like CPQ, CLM, and Billing have in transforming this often arduous process. Below, we’ve selected some highlights from the chapter:
1. How revenue recognition impacts the engine of business
“Your company’s revenue needs to be recognized (i.e., fed into the firebox) in an accurate and timely manner. When too much or too little is recognized, it impedes your company’s ability to budget accurately for its various departments. One department may work with too little funding, while another may dangerously overspend.” —Gilles Muys
2. The difference between recognized revenue and cash collected
“We are dealing with an accrual basis of accounting rather than a cash basis. Basically, a cash basis of accounting insists that revenue is recognized upon receipt of a cash payment. Confusing revenue recognized with cash payments is a common but rookie mistake.” —Gilles Muys
3. What a CPQ solution does for revenue recognition processes
“CPQ makes extensive use of structured data throughout the entire sales process and contract life cycle. This structured data can be used to facilitate revenue recognition calculations not only by providing detailed reporting capabilities but also by creating automation opportunities. But it starts with a sound product catalog structure. You not only need to be able to recognize revenue for each product in your catalog, but you also need to have the proper products in your catalog in order to recognize revenue correctly.” —Gilles Muys
For more information on how Quote-to-Cash tools can fine-tune your revenue recognition processes, including the four most popular methods behind revenue recognition, take a look at the complete book, The Definitive QTC Guide, on Amazon today.