Solving Business Problems Within Finance

Authored by Steve Lance, CFO, RecVue

Ah, the customer relationship management (CRM) system. Quite frankly, it’s the enterprise application that can make almost any CFO feel a little… well, let’s say “ambivalent.” That’s because, in many ways, the CRM system can be “the Wild West” for sales, marketing, and finance – a place where there are fewer rules, fewer controls, and fewer audits that companies rely on to maintain GAAP and Sarbanes-Oxley compliance. Instead, sales and marketing often have freer rein to hammer out customer-friendly agreements with generous (non-standard) terms before moving on to the next deal, leaving others including the CFO to pick up the pieces and make it work.

In many companies, the crucial work of billing, revenue recognition, and accounts receivable takes place in the enterprise resource planning (ERP) system – the company’s system of record. After all, the ERP system is the highly secure, controlled system where SEC financials are created and where auditors zero in to confirm those numbers are accurate, reliable, and consistent and comply with regulations and standards.

Many CFO’s as financial-management leaders have been tasked with licensing and implementing tools that “sit” between the CRM and ERP systems to handle order management, revenue recognition, invoicing, and other tasks. In other instances, the development of custom solutions has been necessary, but that burdens the engineering and product teams to create and maintain them – a luxury that few companies have. In both instances, finance teams are able to deploy solutions for traditional businesses where a product was ordered, the product was shipped, the invoice was issued, and the revenue was recognized. However, with each passing month, that’s an increasingly antiquated view of how many buyers and sellers engage.

The Complexity of Subscriptions and Recurring Revenue

From meal kits and beauty products to music-streaming services and, yes, enterprise software, more buyers than ever are attracted to subscription-based purchases and consumption-based billing. Unfortunately, as any CFO of a SaaS company can tell you, this creates extraordinary complexity that far outstrips the capabilities of CRM and ERP systems that simply aren’t built to handle deferred revenues, ASC-606/IFRS-15 regulations, and other complexities. For instance, a business with recurring revenue must recognize revenue gradually over the course of the subscription term. Then, factor in upgrades, renewals, prorated expansions, sales commissions, and numerous other complications. How do you keep track of it all – in a reliable, auditable way?

Forget using Excel for this – which, to be candid, many billion-dollar companies still try to do. Spreadsheets are inherently fragile and non-secure – things that auditors definitely do not like to see. Imagine watching your external auditor performing a spot test… and recalculating your revenue-recognition spreadsheets. That can be a white-knuckle experience.

What’s more, subscriptions and other recurring revenue models also bring exponentially greater transaction volumes. Manual spreadsheet-based processes mean slower invoices (and a corresponding negative impact on cash flow), greater labor expenses because you need so many people just to keep up, increased audit exposure, and a higher risk of customer dissatisfaction if bills have errors or delays.

Don’t Let Finance Impede Your Growth and Creativity

Many businesses find that their billing systems and manual processes create meaningful barriers to business growth. When sales and marketing have creative ideas for new revenue streams, you want to be able to support those initiatives – not play the role of “Dr. No” by pointing out the tactical roadblocks from outdated enterprise applications that can’t keep up.

Instead, you want a billing and revenue-recognition platform that keeps up with business-model complexity. Your sales team wants the confidence that it can get creative with pricing and strategies while knowing the billing platform can keep pace. And you want the ability to issue more bills in less time with fewer errors.

The fact is, in most industries, the nature of business is changing – and finance must change with it. Don’t let your billing system be the reason your company can’t adopt new initiatives to promote growth.