Revenue recognition is a key concept that helps determine financial reporting accuracy, financial health, and the connection between expenses and revenue.
Today, we’ll break down what revenue recognition is, why it’s important, and how upfront payments can improve revenue recognition and your company’s overall financial health.
What is revenue recognition?
Revenue recognition lays out the conditions under which revenue is recognized and accounted for. Typically, revenue recognition takes place when a key threshold has been crossed, whether that’s the signing of a deal, the transfer of goods, or receipt of full annual contract value (ACV) payment.
Revenue recognition thresholds can vary between industries and companies, but is generally standardized by regional accounting authorities. In the U.S, revenue recognition standards are defined by Accounting Standards Codification (ASC) 606. ASC 606 lays out five key steps that need to be completed in order for revenue to be recognized:
- Identification of the contract. This includes finalizing all contract terms, including payment, delivery, and potential consequences.
- Identification of contractual performance obligations. This details the specifics of your agreement.
- Final consideration/price. This outlines the price of your product while also including fees, discounts, return policies, and more.
- Price per obligation. Think of this as an itemized price list – what exactly your customer owes you for every facet of your agreement.
- Satisfaction of the obligation. Once your obligation as a vendor is complete, your revenue can be recognized.
Why is revenue recognition important?
Revenue recognition can be a key indicator of a company’s financial health, and reflects the accuracy of their reporting. The standardization of revenue recognition is important, because it allows analysts, investors, and potential partners or buyers to accurately assess the performance, value, and potential that a company has.
Growing revenue and powering growth with revenue recognition
Companies that offer long-term contracts and flexible payment terms, such as monthly installments, may struggle to find an effective revenue recognition cadence.
Working with a flexible payments partner can alleviate revenue recognition and cash flow issues.
Using a buy-now-pay-later (BNPL) platform for businesses can improve revenue recognition while also increasing cash flow, allowing vendors to offer flexible payment terms, recognize revenue immediately, and power growth with cash.
Increasing cash flow with Capchase Pay
In today’s market environment, sales cycles are longer than ever. This is due to several factors, including budget constraints, a saturated market, and more stakeholders being involved in deal-closing. Many Sales teams resort to offering steep discounts in order to push a deal through – the average SaaS discount is 17%, which has a negative impact on several metrics, including ACV, CAC, and CAC payback.
Capchase Pay allows B2B SaaS vendors to close faster and at higher ACV without relying on discounts by empowering sellers to offer flexible payment terms to their customers. Integrating seamlessly with your CRM, Capchase Pay allows buyers to select the payment schedule of their choice at checkout, making annual contracts more affordable for those who need it.
Immediate revenue recognition with Capchase Pay
Capchase Pay gives you full ACV upfront on Day 1, allowing you to immediately recognize your revenue. Capchase then manages billing and collections with your customer on your behalf. Let your revenue reflect the actual number of deals closed in a year with Capchase Pay.
Power growth with cash
Capchase Pay allows B2B SaaS vendors to invest in key growth areas, such as marketing, product development, and new initiatives that can help power sustainable growth. At the same time, Capchase customers continue to pay in manageable installments, increasing customer satisfaction and improving retention rates while you invest where it counts.
Making the most of revenue recognition with upfront payments
When it comes to B2B payments, simpler is better. The Capchase Pay B2B BNPL platform makes closing and recognizing revenue frictionless.
- Close deals faster and at higher ACV
- Offer flexible payment terms to customers
- Get paid upfront by Capchase
- Immediately recognize revenue
- Power long-term growth for a sustainable future
Ready to learn how Capchase Pay can completely change this year’s revenue outlook, financial forecasting, and deal-closing sequence? Click here to get started.
