Why Re-Evaluate Your ERP For Revenue Recognition

July 2, 2024

Many organizations have defaulted to using an Enterprise Resource Planning, or ERP, as a single-source-of-truth system to handle multiple business functions. Often praised for being an all-in-one, multi-faceted software, it often means that ERP systems may not go deep in any one area, particularly revenue recognition. Specialized needs are typically not met with the level of detail and accuracy required for precise revenue management.

When it comes to revenue recognition, relying on an ERP platform may seem convenient, but it often falls short of meeting the modern needs of businesses. The good news is that with configurable rules and near real-time revenue recognition, RightRev is reimagining how businesses use ERP financial systems and automated accounting systems. Let’s consider the common pitfalls plaguing modern ERP software and explore how RightRev can simplify asset management for your business.

Why Re-Evaluate ERP Systems for Revenue Recognition?

As businesses shift towards recurring revenue models, such as subscriptions and consumption, the limitations of traditional ERP systems become glaringly obvious. ERPs were not designed to accommodate the nuances of recurring revenue streams, which can lead to significant inefficiencies and inaccuracies. Businesses trying to achieve recurring revenue management in an ERP often seek workarounds in spreadsheets or external applications to satisfy their revenue complexities. Otherwise, they over-customize the ERP finance module to retrofit their needs which leads to slower adoption of new go-to-market motions, revenue models, etc., in the future. The over-customization and external applications create a monster system that needs constant maintenance, specialized coding updates, and creates data silos.

Other reasons for re-evaluation include:  The Complexity of New Standards

A decade ago, the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) released two new sets of standards:

  • ASC 606
  • IFRS 15

Both guidelines seek to standardize how companies recognize revenue and post it to their financial statements. They’re complex standards, but they primarily base revenue recognition timing on companies completing performance obligations—essentially transferring control of goods or services to the customer. 

This complicates many modern companies, especially those in the Software as a Service (SaaS) industry where they have an ongoing obligation to deliver goods or services over time, and often not at the same time as the customer is billed for the product. Sales models are becoming increasingly sophisticated, and structures such as bundled products, ramp discounts, contract amendments, co-term contracts, etc., make deals more complicated to account for recognized revenue in the correct accounting period.

ERP solutions aren’t equipped to handle such complex transactions, so IT departments waste countless man-hours painstakingly customizing legacy ERP modules to meet their needs.

Integration and Automation Needs

ERPs are often used as catch-all solutions for:

  • Commercial operations
  • Human Resources
  • Manufacturing
  • Financial management
  • Inventory management
  • Supply chain operations

While they may support (or replace) most of your tech stack, their versatility comes at the cost of robust functions.

They’re particularly lackluster in revenue and tax management and struggle to recognize revenue for complex transactions with recurring revenue schedules.

That’s why modern businesses are seeking to replace their ERP revenue accounting module with highly flexible revenue accounting solutions like RightRev. Essentially, RightRev acts as a revenue sub-leger, keeping all your revenue calculations and revenue data within a single system while assessing your revenue recognition with advanced capabilities versus catch-all ERPs. Journal entry summaries (or details) can be shared with the general ledger for revenue visibility in the ERP.

Data Accuracy and Real-Time Reporting

With ERPs, revenue recognition is often delayed and disjointed. You’ll generally have to compile information from multiple concurrent financial reports to get an accurate snapshot of your financial health—and even that might not have up-to-the-minute figures. The reports are often pulled at month-end closure time, limiting visiblity into daily and weekly revenue.

However, with solutions such as RighRev, you can automate your revenue recognition in near real-time, keeping your financial metrics always up to date.

Understanding Key Features Enterprises Are Looking For

ERPs aren’t without their place. As mentioned, they serve a variety of use cases beyond revenue recognition. 

However, enterprises want financial functionality out of the ERPs, including—in most cases—the following features:

  • Advanced reporting and analytics: As noted, modern revenue recognition is a complex process due to variability in the timing of performance obligations, frequent contract amendments, and evolving accounting standards. For this reason, enterprise companies need equally intelligent tools that provide robust visibility into revenue contract metrics, revenue waterfalls, deferred revenue, and other key metrics.

  • Flexibility and scalability: Enterprises invest in business systems for today and the future. They want a solution that suits their business model today but can accommodate changes in go-to-market motions and new products/pricing in the future without heavy customization or disruption in business processes.

  • Compliance and audit trails: Regulatory compliance and accurate auditing are musts for accurate revenue management. Misreporting revenue can land businesses in hot water with the SEC and other financial authorities—even if their ERP made the accounting errors without their knowledge. The Security and Exchange Commission (SEC)—the government entity controlling market manipulation—hands out 60% of its fines over improper revenue recognition. 

Key Advantages of RightRev Over ERP Financial Systems

ERP financial modules are simply outdated and ineffective at revenue recognition for complex use cases. They rose to prominence in the 90s—well before modern accounting regulations and payment structures—so they’re incapable of dealing with ASC 606 guidelines and properly recognizing recurring revenue streams. 

On top of this, they:

  • Are slower to work with as heavy upfront investment must be made to customize the ERP to your specific needs
  • Don’t support the kinds of high volumes necessary for expanding businesses
  • Are incapable of adjusting to on-the-fly contract modifications and reallocating revenue appropriately

Meanwhile, RightRev is a modern tool built specifically for ASC 606 compliance. It offers insights with real-time data to empower your financial decision-making and revenue management. It also minimizes the need for external data manipulation, optimizing revenue recognition accuracy for any type of revenue policy. 

Transitioning From ERP to RightRev

Unlike ERPs, RightRev has a high degree of functionality straight out of the box. It’s particularly easy to utilize and implement into your tech stack. Configuring revenue schedules using clicks, not code, makes it easy for accounting teams to operate without requiring assistance from IT or engineering teams. RightRev will then be ready to run the 5 steps of ASC 606 to recognize revenue according to your configuration and then automatically post recognized revenue to your general ledger.

RightRev is a top option for recurring revenue management software, as it can handle a variety of complex revenue distribution methods. With RightRev, you’ll close your books up to five times faster than you would with ERPs and other accounting software. This means less time and money wasted on manual accounting procedures and a higher cost-value split for your company.

Trust RightRev for the Complex Revenue Recognition Processes ERPs Can’t Handle

ERPs are catch-all software that claims to facilitate human capital management, accounting, procurement, and much more. ERP financial systems, however, require painstaking customization, can’t handle intricate revenue recognition procedures, and don’t provide real-time insights into revenue data.

RightRev, however, accurately and quickly automates revenue recognition without time-consuming coding and data transformation. After setting just a few configurable rules, you’ll skip the spreadsheets, automatically post transactions to your general ledger, and make more informed financial decisions with a wealth of reports and analytics to back you up.

Rethink your current ERP system—it could cost you expensive and unnecessary accounting hours. Give RightRev a go, and begin automating your complex revenue streams today.

Back to Blogs

Andrew Trompeter

Andrew Trompeter

Solutions Consultant

Andrew is an experienced revenue recognition consultant. He has extensive knowledge of ASC 606 revenue recognition regulations and criteria and more than ten years of expertise in GL accounting, with a strong emphasis on revenue recognition.

Related Resources

  • modern revenue management

    ERP Revenue Recognition vs. Point Solution

  • business case for revenue automation

    How to Create a Business Case for Revenue Recognition Automation

  • build vs. buy revenue recognition

    Build vs. Buy Considerations for Revenue Recognition

Get out of spreadsheets and workarounds. Get back to accounting.

Learn more