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How Dynamics 365 Finance can help CFOs with the growing subscription economy
Did you know the average US consumer has four subscriptions? Nowadays, more and more businesses offer subscriptions in an effort to meet evolving consumer needs for innovative and convenient products and services while also creating new and predictable revenue streams. Currently, the subscription economy is forecasted to grow from $224 billion in 2021 to $275 billion in 2022.
To meet the growing need of organizations to manage the unique demands of subscription-based business models, Microsoft Dynamics 365 for Finance recently released the general availability of Subscription billing. In this blog, we will discuss the growth of the subscription economy and the unique challenges that organizations face when transitioning or adding new subscription-based business models. This blog will highlight three features, recurring contract billing, revenue allocation, and revenue and expense deferrals, help CFOs tackle the challenges of the subscription economy.
Recurring contract billing
The ability to correctly account for the revenue from complex subscription offerings is critical to obtaining an accurate picture of recurring revenue, maintaining financial compliance, and providing business leaders with the insights needed to accelerate growth. Subscription billing includes a recurring contract billing feature to help organizations overcome this specific challenge. With recurring contract billing, users have advanced control over pricing and billing parameters, contract renewal, and consolidated invoicing. Recurring contract billing can also handle specific billing requirements such as one-off, milestone, and usage-based, and can incorporate tiered or flat pricing strategies. Ultimately, the recurring contract billing feature shortens the quote-to-cash process. The user experience is also improved by providing an easy pathway to consolidate invoices by customer or item and simplifying the contact renewal and termination process.
Allocating revenue into several revenue streams for accounting purposes is one of the unique challenges that participants in the subscription economy face. The revenue allocation feature of Subscription billing provides users with the ability to automate complex allocations and to ensure revenue compliance by handling pricing and revenue allocation across multiple items. Specifically, it helps organizations comply with International Financial Reporting Standard (IFRS) 15 and Accounting Standards Codification (ASC) 606 by assigning default and standalone selling prices and methods to items. This way, users gain flexibility and control by allocating revenue based on standalone prices.
Revenue and expense deferrals
Another challenge in the subscription economy is remaining in compliance with regulations that are still evolving, especially around revenue and expense deferrals. With changing regulations on how organizations recognize revenue, finance teams are apt to get bogged down in spreadsheets, working manually to create formulas and consolidate data for reporting. However, with Subscription billing’s revenue and expense deferrals feature, users can automate revenue and expense deferral processes in alignment with US generally accepted accounting principles (GAAP) standards. The solution also provides a robust and straightforward way of creating schedules for future period postings and consolidating invoices.
2020 Nucleus Research Report on ERP Technology