October 30 by Protik Mukhopadhyay
Quote-to-Cash (QTC) is a key business process for most businesses today. Many companies are implementing Software as a Service (SaaS) based QTC solutions for their business models to enable flexible and scalable solutions to their complex business issues. Transactional tax compliance is a critical component of this solution that will give the required visibility to the end customer about the total price of the quote, and the final amount payable at the time of invoicing. Businesses can face a few challenges when integrating external tax software with their QTC system.
• When is the tax calculated in the QTC process? (Estimated tax at the time of quoting and committed tax at the time of invoicing.)
• What taxes are calculated for the products and services? (Sales tax, Use tax, CA recycling fee, VAT, excise tax, etc.)
• Where are the total taxes calculated, and in what currencies? (Which countries and regions?)
These criteria will allow companies to choose the right tax software to address their unique requirements. Once tax software is selected, businesses should select a systems integration partner who understands the domain and has experience in implementing an end to end solution integrating the QTC and tax systems. This is an important step in the process as any wrong tax calls from the integration layer can result in the tax reconciliation issues between the two systems.
The tax integration adapter developed by the integration partner should sync the products and tax codes from QTC system to the tax software, and ensure that any changes in the QTC system will always be current with the tax software for accurate tax calculations. The adapter should have the capability to reconcile the tax amounts between the two systems and generate the necessary audit reports for this purpose. This will save time and effort for finance users when performing their month end closing and filing their taxes.
The adapter should make a real time call to tax software for calculating the estimated tax for all products and services on the quote. This will give the required data for sales people give the total estimated cost, including the tax. The integration should recalculate the estimated tax if any changes are made to the quote and update the tax amounts in the Quote-to-Cash (QTC) system to keep data up to date for necessary quote presentations.
The tax integration should be able to facilitate tax reversals for returns, cancellations, and credit memo transactions. This is critical for recording accurate tax amounts and reporting up to date tax liabilities. Transactions like prepayments or advance payments should be excluded from tax calculation, and the integration should ensure that these transactions are not interfaced to the tax software.
Integrated tax solutions are gaining importance as companies sell multi-element bundles of subscription services, physical products, digital products, usage-based services, professional services, and milestone-based service which can be changed, upgraded or terminated at any time. Businesses should test their complex tax scenarios when implementing the solution. Incorrect tax calculations, particularly for tax reversals, which can result in heavy penalties from tax authorities, and can create tax compliance issues. With good tax software and an integration adapter for Quote-to-Cash (QTC) systems, companies can have a robust solution that can simplify their tax calculation and reporting.