The emerging Software as a Service (SaaS) industry is quickly gaining ground within the greater cloud services market.
To date, it generates more than $46 billion annually, and that number is expected to grow to $70 billion by the end of 2020.
If you’re a SaaS business leader dependent on customer contracts, you know how important revenue recognition is. Yet, organizing this data and reporting on it isn’t always the easiest task.
That’s where Chargebee comes in.
Today, we’re taking a closer look at how this platform works and its key features to note. Considering it for your business? Read on to learn everything you need to know!
Chargebee Tools for Revenue Recognition
One of the best parts about Chargebee is that it’s set up to accommodate every billing and subscription scenario you can imagine.
This makes important steps, including revenue recognition, a breeze.
What is revenue recognition?
Put simply, it’s a generally accepted accounting principle (GAAP) that identifies certain conditions that your revenue must meet to be recognized. It also defines how your SaaS company will account for that revenue.
Though you’ll collect payments up-front when you sell subscription plans, you’ll only record that revenue as recognized once the deliverable is actually rendered.
As you do so, you’ll need to follow industry standards for revenue recognition, most notably ASC 606 and International Financial Reporting Standard (IFRS) 15.
ASC 606
Developed by the Financial Accounting Standard’s Board (FASB) and International Accounting Standards Board (IASB), this standard describes the framework that SaaS companies should follow to recognize their revenue more accurately and consistently.
Before its implementation, businesses in myriad different industries followed their own best practices for revenue recognition. As a result, there was a lack of standardization in financial reporting, leading to investor and customer frustration.
IFRS 15
This article helps explain the difference between ASC 606 and IFRS 15 in greater detail.
In short, this accounting standard also seeks to unify and streamline revenue recognition efforts, though there are some areas of divergence between the two.
All revenue recognition processes performed by Chargebee comply with all requirements under both ASC 606 and IFRS 15.
Revenue Reporting, Made Simple
Following the new standard is one thing. Adjusting it when an account shifts course or throws a curveball is another.
Fortunately, Chargebee is capable of handling it all.
This ASC 606-compliant model starts by using data straight from your billing platform. Then, it leverages these numbers to solve complex billing use cases and create accurate reports. Some of the instances that it accounts for include:
- Prorations and cancellations
- Upgrades and downgrades
- Full or partial refunds
- Multi-currency reporting requirements
- Write-offers and unrealized revenue
One of the best parts? In addition to revenue reporting features, you can also use Chargebee to manage your recurring payments. This step alone can help you grow your subscription revenue at scale, across hundreds of different currencies and payment methods.
Tracking and Reporting Deferred Revenue
Next, let’s discuss Chargebee’s ability to handle deferred revenue requirements, along with why this issue is so important to track.
In short, deferred, or unearned, revenue is money that your company receives before a product or service is rendered.
As soon as the client pays it, that money isn’t immediately recorded as revenue. Instead, it’s listed as a liability on your balance sheet. Why? According to accrual reporting practices, the full revenue recognition process is still incomplete.
Over time, as you render the product or service that your client paid for, you’ll transfer that money proportionally from the “liability” side to the “revenue” side.
To enable true GAAP accounting, you have to keep up with your deferred revenue just as much as your actual revenue. Doing so helps you organize moving parts and more closely track payments against services provided.
Deferred Revenue Recognition Feature
Say, for instance, that all of your subscribers sign up for a year of service in January, delivering $10 million to your company. It doesn’t make sense to frontload that revenue, recognizing it all as income and sitting on it for the other 364 days.
One change-up you might not expect? A customer upgrading or canceling their subscription in the middle of a billing period.
When this happens (and it will), Chargebee’s automated Deferred Revenue Recognition feature kicks into high gear, performing a day-based revenue calculation to get your financial reporting up to speed.
The tool works by automatically calculating the balance to be recognized each month, along with the applicable deferred revenue. Then, it delivers a periodic deferred revenue report, as well as a comprehensive overview. This function is available across every plan, product, and currency available.
Core Integrations to Know
Looking to simplify the accounting process even more by using Chargebee? If so, you’ll be glad to know that the platform integrates seamlessly with QuickBooks Online and XERO.
With both integrations, you can send invoices, payments, and other data from Chargebee to the program, allowing you to:
- Create more robust financial reports
- Create tax liability reports
- File returns to certain tax authorities
- View cashflow in real-time
- Sync invoices, credit notes, payments, plans, customers, and more
- Sync and update key reports (e.g. Accounts Receivables, Balance Sheet, Profit, and Loss statement)
You don’t have to access multiple computer systems to find the information you need. In a few clicks, your reporting is more precise and data-driven than ever before.
Plans and Pricing
Of course, you need to know what kind of investment you’re looking at before implementing Chargebee at your company.
The platform is available in three models, all priced separately. These include:
- Rise
- Scale
- Enterprise
The Rise model costs $249 per month (billed annually) and extends to 10 users. It’s best suited for small, agile businesses just making the switch away from manual, paper-based accounting processes.
The Scale model costs $549 per month (billed annually) and extends to 25 users. It’s ideal for SaaS business leaders who want to use deep integrations, automation, and detailed data analytics to improve revenue workflow efficiency.
The Enterprise model is entirely custom, with features and pricing tailored to your needs. If your revenue operations are mature, and your compliance requirements are advanced, this can be the best route to go.
Accounting Solutions Made Simple
Looking for dynamic accounting services to help your SaaS or other small business company thrive?
If so, you came to the right place.
Our team of experts is qualified and experienced to perform a wide range of services. This includes bookkeeping, tax planning, cash flow management, payroll management and more.
We’ll take a look at your existing accounting setup along with your current needs. This will help you understand how Chargebee can simplify your operations for the better.
Want to learn more about our solutions and how they work? Get in touch today and let’s take this next step together.