Accurate and efficient revenue recognition is no longer optional—it's business critical. However, this is not easy. Revenue cannot simply be recognized by bookings or cash received, but must be based on the fulfillment of performance obligations over time, such as access to a premium software feature or delivering a monthly subscription box. Given this complexity, automating revenue recognition is the key for any modern business.

My expertise in revenue recognition runs deep. Before merging my own revenue management product, LeapRev, with Recurly in 2022, I spent over 25 years building FinTech products at companies like SAP and Oracle. In that time, I've had the privilege of helping businesses of all sizes, from early-stage startups to high-growth enterprises, achieve transformational results in productivity, profitability, and revenue growth.

At Recurly, I'm continuing my focus on streamlining and automating revenue recognition, but now with an emphasis on supporting businesses leveraging subscription models for sustained success.

In this article, I’ll break down the unique challenges for revenue accounting teams with businesses leveraging subscription models, and how Recurly can help them overcome complexity and refocus on growth.

The challenges of manual revenue recognition 

Manual revenue recognition is a complex and often error-prone process that involves recognizing revenue from sales transactions according to established accounting principles, such as the Generally Accepted Accounting Principles (GAAP) or the International Financial Reporting Standards (IFRS). Companies can face significant challenges when attempting to manually handle this process:

  • Complexity of multi-element contracts: Revenue recognition becomes complex with contracts involving multiple components like product sales, services, or licenses, requiring careful allocation to meet standards. Variable pricing elements, such as discounts or performance bonuses, add further challenges, making manual processes prone to errors and delays in accurate revenue recognition.

  • Compliance risks: Manual tracking can be error-prone and lead to penalties or financial restatements. It also complicates audit readiness, as manual processes often lack clear documentation and audit trails, making it harder to verify compliance and prolonging audits.

  • Delayed financial reporting: Manual revenue recognition can lead to delays in generating accurate financial reports, impacting stakeholders' ability to assess performance and make timely decisions. It also complicates forecasting, making it harder to predict revenue, manage cash flow, and plan for growth effectively.

  • Limited audit trails: Manually tracking changes in revenue recognition, especially in complex contracts, can be challenging without automated systems, leading to inconsistent audit trails and complicating reviews. This lack of transparency can make it difficult for organizations to explain revenue decisions, potentially eroding trust with investors, auditors, and stakeholders.

How Recurly Revenue Recognition helps subscription businesses

Recurly Revenue Recognition is designed to streamline and automate the complex process of revenue recognition, particularly for subscription-based businesses. It helps companies comply with modern accounting standards, such as ASC 606 and IFRS 15, by automating the calculation, allocation, and recognition of revenue from recurring contracts. 

Given the intricacies of subscription-based models, which often involve varying billing cycles, pricing structures, and performance obligations, Recurly provides a comprehensive solution to simplify this process. Here’s an in-depth look at what the solution offers and how it can benefit businesses:

1. Simplifying revenue recognition

Revenue recognition for subscription-based companies is inherently more complex than traditional one-time sales. These companies deal with multiple performance obligations, variable pricing, contract modifications, and other complexities like discounts, renewals, and cancellations. Recurly simplifies these challenges by:

  • Automating calculations: The tool automatically applies the correct revenue recognition rules based on the contract terms, reducing human errors and ensuring compliance.

  • Real-time processing: Recurly processes revenue recognition in real-time, enabling businesses to make timely decisions based on up-to-date financial data.

  • Handling complex billing models: Whether it’s usage-based billing, annual subscriptions, or hybrid models, Recurly adapts to diverse billing arrangements, ensuring accurate recognition across all types of contracts.

2. Build a compliance process with ASC 606 and IFRS 15

ASC 606 and IFRS 15 are both highly detailed and prescriptive when it comes to recognizing revenue, particularly in industries with long-term contracts or multiple deliverables, such as software, SaaS, and subscription businesses. Recurly helps to comply with these standards by:

  • Identifying performance obligations: Recurly identifies all the performance obligations in a contract and allocates revenue appropriately based on each obligation's standalone selling price.

  • Handling variable consideration: The engine can manage pricing structures that involve discounts, incentives, and bonuses, helping to estimate variable consideration and only recognize revenue when it is highly probable that there will be no significant reversals.

  • Accurate timing of recognition: Recurly’s system ensures that revenue is recognized at the correct time—either as the service is performed (over time) or when control is transferred to the customer (point in time).

This automation can adhere to the complex guidelines of both ASC 606 and IFRS 15 without having to manually track every transaction and modify the recognition process based on shifting criteria.

3. Key features of Recurly Revenue Recognition 

A. Flexible revenue allocation

For companies with multi-element contracts (e.g., offering both software and maintenance services), the tool automatically allocates revenue to each performance obligation based on their relative standalone prices. This ensures accurate revenue allocation, whether the contract involves a combination of products, services, or other deliverables.

B. Revenue recognition templates

Recurly allows users to create and customize templates for various types of contracts, enabling quick configuration based on unique business needs. Whether it's for different product lines, pricing structures, or special promotions, these templates make it easy to maintain consistency and avoid errors across multiple agreements.

C. Robust reporting

Recurly provides detailed reporting that highlights the financial impact of various revenue recognition decisions. This includes insights into unearned revenue, deferred revenue, and recognized revenue across periods. This transparency enables users to make informed decisions and pass audits more easily.

  • Revenue schedule reports: Helps in tracking how revenue is being recognized over time for various contracts and agreements.

  • Deferred revenue reporting: Clearly shows the portion of revenue that will be recognized in future periods, ensuring businesses stay on top of their financial performance.

E. Subscription lifecycle management

The engine not only automates revenue recognition but also integrates into the entire subscription lifecycle—from customer acquisition to renewal and cancellation. Recurly keeps track of changes in subscription terms, such as upgrades, downgrades, or mid-term cancellations, and adjusts revenue recognition accordingly.

  • Renewals and cancellations: If a contract is renewed or canceled before the term ends, Recurly automatically adjusts the revenue recognition schedule to reflect these changes.

  • Pricing modifications: In cases of price increases, discounts, or other pricing adjustments during the contract period, Recurly ensures that these changes are reflected in the revenue recognition calculations.

4. Benefits for subscription-based companies

Recurly Revenue Recognition offers several significant advantages for businesses with subscription models:

  • Reduced compliance risk: By automating revenue recognition, Recurly reduces the risk of non-compliance with ASC 606 and IFRS 15, helping avoid costly penalties and restatements.

  • Improved accuracy: Automation ensures that revenue recognition is consistent and accurate, mitigating the potential for human errors that could lead to financial misstatements.

  • Efficiency gains: Recurly automates complex revenue recognition tasks, saving valuable time for finance teams and allowing them to focus on strategic decision-making.

  • Scalability: As businesses grow and handle more contracts, Recurly can scale without the need for manual intervention, ensuring continued accuracy and compliance regardless of transaction volume.

5. How Recurly helps in audit and financial reporting

Recurly’s detailed and organized reporting makes it easier for businesses to prepare for financial audits. By maintaining a complete and transparent audit trail of all transactions, the engine ensures that auditors can easily track the source of revenue recognition decisions. Recurly also facilitates the creation of financial statements that adhere to required accounting standards, making it easier for companies to stay compliant and pass audits with ease.

Recurly Revenue Recognition provides a comprehensive, automated solution that simplifies the revenue recognition process for any modern business, especially subscription-based businesses. By ensuring compliance, offering flexibility, and automating complex workflows, Recurly helps companies streamline their financial processes, reduce errors, and make data-driven decisions. 

Whether you’re a SaaS company, a media company with subscription-based revenue, or any other business using a recurring revenue model, Recurly delivers the tools and insights you need to stay compliant, accurate, and efficient.

Ready to automate compliance and forecast with confidence? Learn more about Recurly’s Revenue Recognition standalone solution.