ASC 606: How Salesforce CPQ Enables Alignment to New Revenue Recognition Rules
First of all… What is ASC 606?
ASC 606 is a new rule issued by the Financial Accounting Standards Board to standardize how companies of all sizes, verticals, and locations will recognize revenue from contracts with customers. In a nutshell, this rule focuses on adhering to principles that ensure a company’s recognized revenue accurately reflects the actual consideration to the company.
How does this impact my business?
Generally Accepted Accounting Principles, or GAAP required all public entities to apply this new standard as of December 15th, 2017. Nonpublic entities reporting under GAAP are required to apply this standard by December 15th, 2018. This means, your company needs to ensure that you are adhering to the new ASC 606 Revenue Recognition Standard, and you have less than one year to do so. Don’t worry, GSD Consultants are here and able to help your company leverage Salesforce CPQ to ensure your end to end sales process is aligned with the new accounting principles.
What is CPQ?
CPQ (configure, price, quote) is software that helps companies build sales quotes, generate proposals and sales contracts, and manage revenue and subscriptions.
How can implementing CPQ help me adhere to ASC 606?
Revenue and accounting standards impact the day to day workflow of finance, sales, and legal departments. A simple answer would be to talk about the fact that CPQ can break down the silos that these departments typically work in and allow for much better collaboration, but we want to dive deeper than that. Let’s explain this by department:
Sales: Since it is unrealistic to expect sales reps to understand how certain elements and concessions of a sales contract can impact the company’s bottom line revenue, it is important to implement a quoting and pricing tool that has automated rules and approval processes. With rules and approval processes in place to provide a uniform structure to all sales contracts quoted by your company, the sales team is free and able to do what they’re paid to do – bring top line revenue to the company.
Finance: Probably the most obvious department of any company that is impacted by new revenue recognition standards is finance. As previously mentioned, it is important to involve finance in developing the structure for sales contracts including discount ceilings and automated approval processes for specific concessions. By pairing CPQ with Salesforce CRM, companies are also able to break down the walls between finance and sales by sending specific details of sales contracts to an ERP or back-office accounting system.
Legal: Something important to note about ASC 606 is that is adds a new hurdle to revenue recognition; the legal terms of a deal will now impact what revenue is recognized. Examples of where this comes into play are additions of free consulting, shipping and delivery charges, and fees incurred. This is when it helps to have a standard set of legal-approved terms and master services agreement sections baked into every quote that leaves your door.
Tying it all together
CPQ ties together sales, finance, and legal departments to ensure that revenue recognition standards are met on every opportunity, without exception. For an evaluation of your company’s CPQ needs and adherence to ASC 606 Revenue Recognition Standards, please reach out to GSD Sales by filling out the contact form below, or reach out directly to email@example.com
Author: Gregory DelGenio, Vice President of Sales and Client Services