5 Revenue Recognition Risks that can be Overcome by Automation Tools

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The world of business has been transformed almost beyond recognition over the past 20 years or so. A huge array of office technologies have entirely changed the way we do commerce. From VoIP services to facilitate easier and more reliable communication, to payroll software allowing for simpler and more efficient payment processes. These new technologies haven’t only enabled us to work closely with colleagues, clients, and customers in every corner of the globe. They’ve also made it possible for firms to streamline and rationalize processes, enhancing efficiency and saving money into the bargain.

Automation, it’s fair to say, has been the subject of seemingly limitless hype in recent years. There’s been endless discussion over its potential impact on jobs – will it simply eliminate them or spur the creation of new jobs elsewhere? – and how the burden of work may get distributed in future. 

Coupled with the revolution in big data, there’s barely a single sector or profession that’s been left untouched by this latest wave of technological transformation. Whether you’re looking to share digital documents with a client thousands of miles away or sharpen your risk management processes, there’s an app – or at least some sort of technological tool – for that.

What’s more, the pace of this transformation shows few signs of slowing in the years ahead. So, the question facing businesses (and other organizations) is this: how can you make technology your servant rather than your master? 

Revenue recognition software has been widely adopted by businesses, allowing them to optimize and simplify processes to channel resources into more productive avenues. Here, we’ll look at five of the most common revenue recognition risks that automation tools can help you address. But first, we’ll take a closer look at what revenue recognition actually is.

What is revenue recognition, and how does it work?

In a nutshell, revenue recognition is a generally accepted accounting principle which involves identifying under which specific conditions revenue is recognized, and working out exactly how to account for it. Generally speaking, revenue is recognized when a critical event occurs, allowing the firm concerned to measure the dollar amount at issue. Sometimes this might be as straightforward as a one-off sale to a customer. It can be more complicated when it involves a contract (as these are often liable to change and renegotiation).

Revenue reporting is always a bit frantic, even at the best of times. As deadlines loom large, huge amounts of human resources are poured into one overarching task: getting those calculations together and making sure that everything is as it should be. Clearly, this can have serious effects elsewhere, tying up valuable human labor in tasks that might otherwise be completed more efficiently. This is why so many firms are turning to automation tools to do much of this work, freeing up members of the team to complete other tasks.

There are other advantages to automating revenue reporting, including faster calculation and improved accuracy. After all, humans are, well, only human. In other words, they may be prone to errors which automation tools could cut out altogether. When you look at it in this light, revenue automation is something of a no-brainer for businesses.

Top 5 revenue recognition risks – and how automation tools can help

Now, let’s look at some of the most common risks involved in the revenue recognition process, and discuss how automation tools might provide a helping hand.

Contract costs

Cutting down on costs is always a top priority for firms. The principle affects everything from payrolls to choosing a business phone service. Contracts, though, can be an expensive business, and all sorts of gremlins can lurk in the small print – as many businesses have found out to their cost over the years. 

It can be especially difficult to collate all the relevant data and calculate costs on that basis, making manual revenue recognition a major challenge. Automation can make revenue recognition far easier by rationalizing the relevant processes and taking all aspects of contracts properly into account.

Contract changes

Another factor to bear in mind here is that contracts are rarely completely static for their full duration. Clients and customers, for various reasons, may consider it necessary to make changes in light of altered circumstances and needs. 

Keeping track of such changes is rarely a straightforward task. It can often be very difficult for human employees to do by themselves using spreadsheets (which may struggle to cope with the full complexity involved). Automation helps to ensure that this task is completed not just in a more timely fashion but in an accurate one as well.

Aggregating data

We’ve already touched on the complexity involved in contracts, so it’s a point that obviously applies more broadly. If contracts alone can contain so much potential for complications and unexpected changes, try to imagine how much more complex revenue accounting must be across the board. 

There are so many systems feeding into the process, providing huge quantities and diverse types of data. You can see already, then, just how difficult it can be to keep tabs on all this information and factor it into the task of revenue recognition.

Automation can, again, make this whole process much simpler and more straightforward. Automated revenue recognition can group together different kinds of data in a streamlined way, making it far easier to manage revenue contracts. Without automation, however, the task of grouping and aggregating data can be hugely resource-heavy, in addition to being prone to errors.

Event-based revenue triggers

The release of revenue might be deferred until certain events take place. These can include delivery, acceptance, or consumption, for instance. Evidently, this can seriously complicate the task of revenue recognition, as it is often quite difficult to keep track of these triggers and the exact timing of their activation. 

Automated solutions make it far more straightforward to track and report event-based revenue triggers. They also ensure you have a robust start-to-finish audit trail, and even enable you to make accurate forecasts.

Calculating standalone selling prices

For some businesses, it can take several weeks in every single quarter for their accountants to manually calculate standalone selling prices. Then, once they’ve done that, they have to work out how it might apply to a contract. That contract, in turn, may include varying aspects and numerous performance obligations. 

Automating this task is therefore something of a godsend for businesses. It saves both time and labor, and on top of this it enhances visibility. That’s by allowing calculations to be reallocated multiple times and facilitating the easier management of large quantities of data.

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