Revenue recognition is an accounting principle, which refers to how revenue is treated or recognized.
While relatively straightforward in many sectors, revenue recognition can be a particularly complex matter in professional services, due to factors such as work being done under an array of different contract models along with complex deliverables.
Organizations are required to account for billed vs. unbilled receivables and deferred vs. recognized revenue, based upon the specifics of each sales contract.
Generally speaking, there are 6 different models of contract structures that a professional services organization may use. And, often times, they will use different models for various types of clients or projects, resulting in a more complicated revenue recognition process.
- Time and Materials Contract Structures
- Fixed Price Contract Structures
- Not To Exceed Contract Structures
- Retainer-Based Contracts
- Recurring Service Subscription
- Managed Services Contracts
In order to simplify the revenue recognition process, it is becoming increasingly common for professional services organizations to seek out a Professional Services Automation (PSA) solution that has revenue recognition functionality built-in.
How Klient PSA Can Help Simplify Revenue Recognition
With a Professional Services Automation solution such as Klient PSA, organizations can manage complex billing and invoicing situations by configuring rules that completely automate project billing—including fixed fee, billable rates, milestones, installment agreements, and recurring billing types.
Furthermore, users can also manage vendor bills and payments with ease. And, the services organization can recognize project revenue with revenue recognition templates and calculation methods. This allows the services organization to create multiple recognition rules per contract and project and simplify the process of revenue recognition.