ASC 606 Compliance and Apttus Quote-to-Cash

Contracts, Quotes, Orders drive Revenue Recognition

ASC 606/IFRS 15 accounting standards promise international alignment on how companies recognize revenue from contracts with customers. The guidelines are about the results of your end-to-end processes starting with contracts, through pricing, quotes, orders, and ending with revenue recognition.

With ASC 606, the Revenue Recognition process is moving from being driven by orders and invoicing schedules, further upstream to being driven by Contracted Pricing in an agreement or quote. And ERP systems initially built for one-time transactions of physical goods are hyper-customized with workarounds in attempts to handle a blend of business models, and are generally inaccessible to those engaged in the sales process, including direct customer self-service. These two challenges underscore the need for a complete Quote-to-Cash system to enable automatic handling of treatment of revenue under the new ASC 606 guidelines.

Apttus Quote-to-Cash solves compliance with evolving standards, and automates the revenue recognition process, reduces the time & cost of calculating, recording, and reporting on revenue, and eliminates the use of manual processes and reliance on spreadsheets.

Apttus Automates to Manage the Inevitable Changes

Performance obligations identified in Apttus

ASC 606 guides that what constitutes a contract with a customer should be identified. That could mean an explicit quote sent to customer from a direct salesperson, a negotiated contract document, or a click-through agreement to an online service terms.

The business conducted with customers using Apttus CLM and CPQ captures the essential information from the agreement.

Determine the transaction price and allocate to performance obligations

Explicit descriptions of products & services, terms of subscriptions, future uplifts, and limits on liability are contained in Apttus. Implicit terms which affect pricing and allocation, such as the SLA in a contract, or discount in a quote configured are contained in Apttus. Discounts, terms, rebates, and promotions all affect the expected consideration.

Apttus Quote-to-Cash orchestrates all the information needed to determine the transaction price and allocate that price across performance obligations. And Apttus reallocates and modifies the valuation when contracts change.

Recognize revenue when the entity satisfies a performance obligation

The final step to compliance with ASC 606 relies on Apttus Revenue Recognition. It begins with the Apttus Price List where definitions for each product & service and Revenue Recognition Rules which define how and when revenue will be recognized are contained. Apttus Revenue Recognition will automatically handle usage-based, royalty-based, deferred recognition, immediate recognition, ratable recognition with deferred revenue, and milestone-based recognition, giving visibility into the revenue recognition schedule, and passing the pertinent data to the ERP system of record.

More importantly, Apttus automates for inevitable change

When a customer chooses to upgrade, add more products, or swap one product for another, before the natural end of the contract, whether through an account executive or through the Apttus E-Commerce portal, Apttus Quote-to-Cash will automatically handle the mid-cycle change to contracts, the change to assets-owned, and the resulting impact to invoicing schedules and revenue recognition schedules, providing a full audit trail and solving compliance.

Align incentives with new revenue recognition policies and drive behaviors

With ASC 606, all commission expenses associated with contracts will need to be capitalized and amortized in alignment with the timing of revenue as earned. This will add complexity to many existing sales compensation plans and will also inspire new plans to better align sales behaviors with new revenue recognition policies. Apttus Incentive Compensation is an automated, auditable, transparent solution that enables compliance and gives you the flexibility to quickly adjust incentive programs as market needs change. Leverage Apttus Incentive Compensation to effectively motivate your sales organization and encourage behaviors that align with your corporate strategy.