The Challenges with Accounting and Financial Reporting for Subscription Businesses

In today’s Netflix and Amazon era, every business is looking to transform into a subscription business to cater to new and evolving customer requirements, personalize product delivery, and guarantee a steady flow of recurring revenue. But as the model explodes across all industries, there is also this realization of how complex the accounting and financial reporting process is.

Read on to learn why subscription businesses need to invest in billing and accounting systems, uncover joint accounting and financial reporting challenges they face, and how a billing automation platform like Work 365 can help address them.

Accounting and Financial Reporting Challenges Are Constantly Growing

The subscription business model opens doors to several benefits, but as businesses start to scale and grow, they realize that managing subscriptions is a different ballgame. An array of distinct moving parts must be managed periodically, from different billing and contract terms to renewal dates, pricing tiers, locations, payment methods, and more.

Managing this constantly changing subscription-related data introduces several accounting and financial reporting challenges, including:

Efficiently Dealing with Deferred Revenue

If you bill customers every month, you also need to collect payments every month. But receiving advance payments for services yet to be delivered is a common phenomenon in any subscription business, making deferred revenue a liability since it refers to revenue that still hasn’t been earned.

Instead of being reported in the income statement, deferred revenue is reflected as a liability on the balance sheet. Accurately calculating deferred revenue liability is a big challenge that most subscription businesses struggle with.

Plugging Revenue Leakage

Subscription customers expect high levels of billing flexibility in billing cycles, payment terms, and more. But this flexibility introduces immense complexity in the accounting process. Businesses need to have a real-time view of different customers and their different billing terms and preferences, or else they stand the risk of billing incorrectly.

The probability of this is exceptionally high, given the flexibility that subscription business models allow. Proper management of subscriptions requires companies to plug many loopholes, and with billing options constantly changing, accounting teams have a herculean task at hand.

Integrating Billing with Accounting Solutions

Another major challenge for subscription businesses is integrating their billing processes with their accounting solutions. If you want to build recurring revenue, you need to be able to invoice your customers and cater to their flexible schedules, and that requires a constant flow of data between your billing and accounting systems.

Unless you can manage customer subscriptions and invoices with flexible billing components and billing logic, you won’t be able to scale your business or evolve to new billing models, capture more revenue, and accept more payments globally.

Analyzing Data Based on Net-New, Add-Ons, and Renewals

With new add-ons and renewals constantly happening, accurately tracking and invoicing such usage-based billing doesn’t come easy. For subscription businesses, tracking, reconciling and reporting such consumption while also managing taxes requires them to monitor changes in subscription data constantly and then make those changes in individual customer invoices – in a timely and accurate manner.

Billing and Accounting Systems Cater to Different Requirements

Any subscription business needs robust billing and accounting systems to keep a record of transactions and send out accurate invoices on time. While the lines between billing and accounting systems have blurred in recent years, they continue to serve two very different purposes. Subscription businesses need to have both these systems to track and invoice usage-based billing accurately:

Accounting systems to document and classify all financial transactions, including money that comes in and goes out, total revenue, profit, budgets, and expenses, as well as accounts payable and receivable.
Billing systems to automate complex manual tasks associated with creating accurate invoices and efficiently track actual product/service usage, client provisioning, discounts, plans, tiers, taxes, and more.

Accurately Tracking and Invoicing Usage-Based Billing with Work 365

As a modern billing and invoicing automation platform, Work 365 enables subscription organizations to get complete control over their business. It allows them to streamline operational activities, track, reconcile and report on usage-based consumption, and grow their recurring business.

Powered by the Dynamics 365 Platform, Work 365 provides advanced automation capabilities with Power Automate, Power Apps, and Dataverse.

Using an automated billing platform like Work 365, subscription businesses can enable intelligent business automation across various accounting and financial reporting tasks, including provisioning, change tracking, invoicing subscription management, and product bundling.

With Work 365, you can enable seamless integration with leading accounting and payment systems, automate complex invoicing tasks, and enable faster collections. You can devote more energy to servicing your customers, crafting customized experiences, and proactively plugging revenue leakage by saving time on internal support and complex administrative activities.

Implement Work 365 today to efficiently manage and automate your recurring billing flow, track flexible billing terms, and generate accurate and timely invoices.

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