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NetSuite and ASC 606 Revenue Management | Ask An Expert

NetSuite

NetSuite Revenue Management

NetSuite’s powerful revenue management tools are in high demand since the passing of new accounting rules; ASC 606.  This set of rules is designed to improve consistency in reporting revenue in and across industries and ideally simplify financial reporting. The new set of guidelines requires companies to really think about when revenue should really be recognized and put in place tools to automate revenue management. To this day, clients are making adjustments to their internal processes based on these steps:

  • Identify the contract with a customer: A variety of criteria must be met to ensure that a contract has been established. In most companies, this is a very clear point as a sale occurs.
  • Identify the performance obligations in the contract: For any good or service, there may be multiple obligations one must meet, these may include both deliver and support for a product for example
  • Determine the transaction price: The specific price for a bundle of products, or a service, may not be obvious and must be fully considered for everything a company sells.
  • Allocate the transaction price: Once determined the associated revenue must be allocated across all of the performance obligations appropriately.
  • Recognize revenue when or as you satisfy a performance obligation: Revenue recognition then occurs over time, across products and will need to be adjusted when changes to the client contract or pricing occur. 

 

What kind of companies are implementing Revenue Management?

Software & High Tech: These companies previously had specific rules that could be relied on.  In today’s environment, many SaaS and high tech companies are selling complex mixes of products and services that deserve unique consideration. 

Retail & Distribution: More than just physical goods, many items come with software, loyalty programs, or are sold with support and warranty making revenue management much more sophisticated. 

Manufacturing: Many companies in this industry are contract manufacturing as well as in-house. They may also be combining services, consulting and project manufacturing with make revenue management much more interesting. 

VARs and Solution Providers: These companies typically have many performance obligations depending on service, hardware agreements, partnership arrangements etc. Revenue  management becomes an issue that deserves automation 

Media/Publishing/Advertising: This industry is as diverse as the clients they serve. Contract terms, intellectual property rules, project specifics and event management need careful consideration. 

Nonprofit: These companies see revenue from many sources, including memberships, subscriptions, tuitions, sponsorship, licensing and others. Many of our clients are both nonprofit and distributors, manufacturers or service companies. 

 

How does NetSuite Revenue Management Work for ASC 606?

NetSuite has a specific set of tools for revenue management. While NetSuite has highly automated “Revenue Recognition” for many year the new tools allow for the sophisticated automation of tracking of obligations, price and the allocation of revenue over time. This can apply to all item types, projects, and contracts. NetSuite makes it easy to make adjustments to the revenue plan when changes occur. If the customer upgrades, downgrades, or extends a contract or there is a variation of any of the inputs such as the obligations or price, NetSuite adjusts automatically. With this tool, users have the ability to accurately forecast revenue and see the impact changes have on future profitability. 

 

Is NetSuite Revenue Management Required?

Any company that does not have a simple equation of price and associated obligation should consider using NetSuite’s revenue management tools. Because it is very flexible and relatively easy to set up, NetSuite can take the work off of sales and finance users and allow them to focus on growing revenue rather than managing it. 

 

How is NetSuite Revenue Management Implemented?

NetSuite Revenue Management is implemented typically during a new implementation where the revenue rules and processes are set up to match the 5 steps ASC 606 requires.  Revenue Management can also be implemented after a client is live on NetSuite but care must be taken when re-evaluating revenue and performance obligations that occurred in the past as these older transactions may result in restating prior year financials.  

 

To determine if NetSuite’s Revenue Management is suitable for your company, please contact us here at Plative so we can learn more about your unique requirements.

 

Author:

Rob MacEwen

Managing Director, NetSuite