Re: Has anyone figured out how to start revenue recognition before invoicing?
Has anyone figured out how to start revenue recognition before invoicing?
I have situations, for instance in a multi-year subscription, where I need to send invoices after revenue recognition needs to begin. As an example, I have a three year contract that contains billing terms of $12,000 the first year, $24,000 the second year and $36,000 the third year. My accounting requirement is to recognize an even amount each each month over the term so I want to recognize $2,000 revenue in the first month. I can't send my customer the $24k and $36k invoices, yet. Essentially, the revenue is booked before it is billed. Any thoughts would be greatly appreciated. My current approach is to generate all three invoices and put the last two in a drawer. Clearly, doesn't scale well.
From your description, I believe the charge in this 3 year subscription is still an annual charge. So, if this is the case, then when you generate the first invoice, it will only bill the $12,000 for the first year. If you would like to recognize the revenue for the 3 years without generate all invoices, then you can use unlimited recognition model (Custom Revenue Rule Model) to set the rev rec rule.
By using this kind of recognition model, you can manually create the revenue schedule to recognize the revenue when the subscription is created, no matter the invoice has been generated or not. This model will not generate revenue schedule when invoice generated.
How did you do your current method with 3 invoices? With just 3 subscriptions and playning with invoice and target date?
The Zuora support solution works, but I don't know if accountants like it that you would freely add revenue which is not invoiced and does not have a direct relation to the amount in the subscription (both are mandatory from an accountants perspective).
- Create 1 subscription for the whole period: set the billing period on the charge to 3 years, amount of 72000 per billing period.
- Use 'more'-'split billing' on the invoice to split the draft invoice in 3 parts: first invoice on today for 16.6666667%, second invoice 1 year from now for 33.3333333%, third invoice 2 years from now for 50.00% (total 100%) and will give you precisely the invoices of 12, 24 and 36 you want.
The advantage is that the service period on all 3 new invoices will remain the original total 3 years! so your revenue recognition is automatic (no dangerous overruling necessary) and will create the 24-24-24 schedule for you (if you add up the 3 revenue schedules from the split invoices).
The invoices are dated correctly and have their correct due date: it is up to you if you let Zuora send them out, or store them in your drawer of course.
Let me know if you like this model.
Hi Yvonne, We are using this Unlimited Recognition rule, but are unable to find a solution at the end of the month. In other words, how do we keep track of our unbilled revenue, which eventually turns to deferred revenue toward the ends of the subscription as we invoice the customer? What step are we missing?
Another agent has reviewed your post and has responded on your internal ticket.
If you have further related questions, feel free to reply on your ticket and someone will follow up with you.
Hi Adam - Are you referring to Monique's response? Although the ticket is solved, we still are facing some manual steps, that I was hoping to eliminate by seeing how other users using this Unlimited Rule, are handling the unbilled revenue till it becomes, deferred or recognized. At this time we have about 6-10 customers using this rule, and the manual work is already significant, I worry as more customers are added that need to use this rule, that things will start getting very complicated.
Hi Pkeeler, Unlimited Rev Rec model is a subscription level recognition model, not invoice item level, so you can create revenue schedule as you need for subscriotion charge directly without generating any invoice, and the amount could be self-defined and no need to be the same as the invoice amount. Revenue schedule generated via Unlimited Rev Rec Model will not tie to the invoice.
Thanks for this information, sorry for so many questions on this, but I have little to no accounting background, but need to answer to Finance and Accounting as to why the numbers are off each month since we starting using this model. I will take all the information everyone has provided back to both teams and see if it now makes sense to them now.