The introduction of ASC606 has significantly impacted companies in the software and technology industries, necessitating robust solutions for handling sales revenue recognition. Achieving compliance often requires aligning sales and accounting teams on business processes, a task that can present considerable challenges. This is particularly true for small to medium enterprises, where the system architecture typically includes a front office system such as Salesforce, MS Dynamics, Hubspot, or Zoho, and a back-end accounting solution like NetSuite ERP. Middleware solutions like Celigo, Dell Boomi, or Workato often bridge these systems. While focusing on ASC606 implementation within the accounting system is critical, this approach can sometimes fall short, leading to inadequate results and dissatisfied clients.
Based on my experience, here are the top five considerations when implementing NetSuite's Advanced Revenue Management (ARM) module:
1. Product Master Management
Determining the location and ownership of the product master within the ecosystem is crucial. A well-defined business process for product management ensures that the accounting team can set up revenue rules or triggers before a sale occurs. This preemptive setup is essential for seamless revenue recognition.
2. Defining Revenue Recognition Rules
Aligning and defining revenue recognition rules, allocation rules, and triggers based on the pre-defined revenue accounting memo is vital. While business users typically define the requirements, reviewing the revenue memo allows for asking the right questions to the accounting team and clearly outlining the system's limitations upfront.
3. Contract Finalization
Once a deal is closed by the sales team, appropriate approvals must be in place to review any variable considerations, free services, or discounts that fall outside the standard process. This ensures the correct setup of the revenue contract in NetSuite, avoiding future complications.
4. Handling Contract Modifications
Managing modifications to original contracts, such as upsells, downsells, product swaps, license and maintenance contracts, contract term extensions, credits, and refunds, can be challenging. Capturing all scenarios accurately along with the desired accounting outcomes is essential. Once defined on paper, implement these scenarios in NetSuite using return authorizations or credit memos, depending on the situation. NetSuite's ARM module regularly receives new features, so staying updated is key.
5. Data Migration Strategies
Data migration for revenue contracts can be complex, especially when allocation rules differ from the previous system. When allocations are enabled, deferred revenue from the prior system may not always match the new system. The most effective method I've found is to load the full contract as originally closed, then generate revenue recognition plans and allocations based on the original contract. Complications can arise when original contracts were modified or when some contracts have contract liability/asset balances with partially recognized but not yet billed line items.
Implementing NetSuite's Advanced Revenue Management module with these considerations in mind can help ensure a smoother transition, better compliance, and higher satisfaction for all stakeholders involved.
Shraddha Shah
Director - NetSuite Services
Namo Cloud Solutions Inc.
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