By Joseph Clancey, Product Marketing Specialist
Wednesday, April 7, 2021
Companies that work on long-term projects, or bill customers at regular intervals
based on contracts in place, frequently receive payment before the entire project
is complete or the service delivered. Under U.S. generally accepted accounting
principals (GAAP) and international accounting standards, a business can't
recognize that revenue until it delivers the goods or services to a customer.
Accounting for project revenue that's earned over time using intervals and
milestones can be a lot more complicated than accounting for revenue earned all
at once, like delivering a physical product. Project revenue must be properly and
accurately billed and recognized at the right time so that the organization is
working with the accurate data to efficiently run its business, staying compliant
and ultimately increasing project profitability.
However, without the right solution, managing revenue recognition can become
time-consuming, complicated and expensive.
Manual Processes. One of the primary challenges with recognizing revenue on
projects is the countless hours that can be spent running through line items and
calculations in spreadsheets to reconcile month-end close or the completion of a
project. Without automated processes like dynamic resource and cost allocation
charts, organizations have to run these processes manually, which can be
cumbersome and become a logistical nightmare for services organizations that
typically rely on efficiency to stay profitable. This manual work leads to data
errors and wasted time that can better be spent elsewhere. The right software can
connect project cost and deliverables to financials with much less time and
effort.
Lack of Flexibility. Managing different types of contracts on different projects,
like lump sum or fixed-price contracts, can be a struggle for many services firms
that aren’t properly set up for these contract complexities. Recognizing that
revenue too fast or too slow can create cash flow issues. And, when organiz ations
don’t have flexibility or the ability to process different types of contracts, they
may miss out on business opportunities. Without continuous real-time data, the
situation can get even worse. It becomes difficult for project teams to determine
if they are running over budget and plan against performance obligations or task
completions.
Poor Control. For projects, setting up revenue rules right the first time is
paramount. This tells core project and financial systems and teams to recognize
revenue at specific times as goods or services are completed. When service
organizations don’t have clear back-end revenue recognition rules set up during
projects, allocating costs of resources can become a manual process again and,
without the automation tools to implement the rules, they lose control over when
billing needs to take place or recognizing project completion and the revenue it
generates.
Ineffective Reporting. When services organizations rely on manual work for
reporting and can’t get real-time data for project financials, revenue recognition
efforts run into delays and inaccuracies. For example, if a team spent extra hours
working on a portion of a project or moved around resources that bill at different
rates, the business may need to renegotiate contracts or change target dates.
Without real-time automated reports to capture budgets vs. actuals, revenue and
profitability forecasting, it’s going to take more time to accurately recognize the
revenue.
With a professional services automation (PSA) solution that connects the
company’s projects to financial, CRM and HR data, companies can gain better
control over revenue recognition. PSA software can help services businesses:
• Increase automation so that teams can spend less time on spreadsheets,
repetitive data entry and month-end activities. Let a PSA solution handle
the hard work of complying with accounting standards like ASC 606 and
IFRS 15 so that revenue can be reported at the right time.
• Enable project managers to stay nimble with performance obligations
and the different types of contracts that some projects require to ensure
revenue from each line item is managed correctly. No two project or
customer are the same, so being able to manage the multiple types of
contract like lump-sum or fixed rate with the help of a PSA solution lead to
better efficiency.
• Optimize project and financial controls with rule-based handling
frameworks that recognize revenue automatically based on the assigned
schedule or milestone, improving compliance.
• Gain financial insights with more effective reporting so that project
managers and finance leaders can monitor cost allocations, billing,
invoicing and forecast revenue for the different types of contracts set by
teams.
NetSuite SuiteProjects is designed to help services-based businesses simplify
project accounting by automating these complex project deployments so that
projects are successfully completed on time and recognizing revenue based on
different contracts are easier to manage. SuiteProjects enables teams to automate
processes and ensure accurate accounting and billing. It also allows organizations
to recognizing revenue separate from project billing to ensure the accuracy of
financial statements and safeguard compliance, as well as provide greater
forecasting insight. SuiteProjects brings together all these elements in a single
solution so that organizations ultimately can operate and deliver projects more
efficiently.
