For software and technology companies, billing and revenue is generally derived from the following elements; perpetual licenses, subscriptions, maintenance (potentially usage and/or hardware) and services. These different elements each have distinct rules to trigger billing and recognize revenue in accordance to local governing regulations. Finance tends to have a good handle on managing the rules and triggers across most elements, albeit some of this work may be managed manually with spreadsheets.
One area where finance tends to face significant challenges is in terms of determining when and how much to bill as well as how much can be recognized with services. This is a significant challenge since services generally account for 15 to 30 percent of the revenue within software and technology companies.
Recognizing the Gaps Between Services and Finance
The cause of this challenge is a systems and communication gap that tends to exist between finance and services. Finance tends to be completely reliant on manual forms of communication with services in order to determine when and what to bill and how much they can recognize. This manual process creates delays in billing and revenue reporting, and is prone to error.
So what are the top communication gaps between services and finance? Below is a list of the most common ones I've come across.
- The lack of workflow and connection between opportunities, orders and projects. For example, service line items on an order should allow for the creation of projects and notify the assigned Project Manager or Professional Services Leader that a pending project is in cue to be set-up, staffed and kicked off.
- Finance being unaware of project milestone completion in order to trigger billing events and/or revenue bookings. Any charges triggered by project managers to be billed should be made available for finance in real time.
- Services often rely on finance for project accounting data such as costing and P&L reporting. The professional services team is typically accountable for their P&L at the project and/or portfolio level so having access to accurate and real time data is critical.
- Finance being unaware that there are billable time entries and expenses ready to be invoiced. Again, finance should be notified in real time of any billable time or expenses that have been entered, approved and ready for billing.
- There is a direct correlation between project progress (managed by the project manager) and the amount of services revenue that can be recognized (managed by finance), which makes it troubling to understand how the two can be so disconnected. Finance should have access to this information without any intervention by the project manager apart from having them do their job.
These problems can have a major impact on the business including delays in billing, negative impact on cash flow, delays in recognizing revenue as well as poor customer satisfaction.
Closing the Gap
Two key items are required to address this challenge. The first is to establish strong lines of communication between finance and services with repeatable processes based on best practices.
Secondly, those best practices must be supported by having ERP and PSA (Professional Services Automation) tightly integrated, often referred to as SRP (Services Resource Planning). SRP provides an integrated approach and enables a seamless process from order to cash including managing and tracking projects. Data can effortlessly flow across functional areas and proactively made available to the appropriate resources for any action or transaction that needs to occur. It also provides real-time visibility and allows services, finance as well as other areas of the business to consume the data they need for strong decision support as well as providing a 360-degree view of the entire business.
If these types of challenges are facing your services and finance teams, it’s a very strong indication you’ve outgrown your manual processes and it’s time to graduate to an integrated finance and professional services solution, such as NetSuite OpenAir. Contact us for a complimentary services value assessment today.