In addition to highlighting trends such as the Digital Solutions Economy (DSE), industry-focused solutions, and SAP initiatives like artificial intelligence and S/4HANA cloud, this Insights Series will also periodically provide answers to the top questions that we hear from our clients and partners.
In this episode, we dive into five issues that are at the heart of optimizing Quote-to-Cash to Compliance with SAP Revenue Recognition and subscription management applications, including complex bundling scenarios.
1. Revenue Recognition for Subscriptions:
Is there a quick and simple way to implement integrated Revenue Recognition for Subscriptions in SAP S/4HANA Public Cloud?
SAP offers a wide range of options to select from in S/4HANA, all of which take advantage of the seamless nature of the end-to-end SAP ecosystem and its unified data structures. The good news is you don't necessarily have to take on more complexity than you need to get the job done.
As the SAP partner with the most revenue recognition implementations and deepest involvement in the ongoing refinement of solutions such as SAP Revenue Accounting and Reporting (RAR) and Automated Revenue Management solutions, Bramasol can help you navigate the most complex RevRec scenarios. But we also have pioneered methods for delivering only what you need. As part of this "client first" approach the Bramasol team has developed a Partner Packaged Solution (PPS) that focuses on using a handful of targeted SAP capabilities that will get you up and running in three months at a manageable cost for licenses and implementation.
The packaged solution combines SAP S4/HANA Public Cloud Edition, Subscription Billing and Event Based Revenue Recognition (EBRR) functionality to create a lean tech stack that can be quickly implemented for end-to-end management of subscription offerings with integrated revenue compliance. As shown below, everything that is needed can be combined within a unified architecture that leverages the inherent scalability of S/4HANA Public Cloud and SAP Business Technology Platform (BTP).
This Packaged Solution approach not only addresses the requirements to rapidly implement, manage and scale a subscription based business to take advantage of recurring revenue opportunities; it also establishes a solid foundation that can be extended and adapted to accommodate any future requirements simply by integrating other SAP applications without requiring a wholesale makeover.
2. Standalone Selling Price:
What is SSP, why is it needed, and how is it determined?
Within the Five-Step model, Step 4 of ASC 606 and IFRS 15 requires an allocation of the total consideration in a contract, which your company is entitled to collect for each distinct performance obligation. Standalone selling price (SSP) is used to determine the allocation for each performance obligation in the contract. As shown below, the three acceptable methods for estimating SSP are 1) Adjusted Market Approach, 2) Expected Cost Plus Margin Approach, and 3) Residual Approach.
- In the Adjusted Market method, you can evaluate the market in which your company sells goods or services and estimate the price that a customer in that market would be willing to pay for those goods or services.
- The Expected Cost Plus Margin method involves forecasting your company's expected costs for satisfying a performance obligation and then adding an appropriate margin for the good or service.
- The Residual Approach involves estimating SSP by reference to the total transaction price less the sum of the observable standalone selling prices of other goods or services promised in the contract. This method can only be used if the entity has not yet established a price for that good or service, and the good or service has not previously been sold on a standalone basis.
3. Bundling Subscriptions with Equipment Sales or Leasing:
We are a lessor of equipment that also offers subscriptions for usage and consumables. How can we integrate revenue recognition processes for both?
Many equipment makers across a wide range of industries are actively integrating subscription-based offerings in order to boost predictable recurring revenue and deepen customer engagement. However, in order to take these bundling scenarios to an optimal level, equipment makers need to leverage integrated solutions that bring all the backend processes together in a seamless end-to-end environment that meshes with compliance and reporting mandates.
The Bramasol team has pioneered the evolution of purpose-built, integrated SAP solutions for addressing these bundling scenarios with revenue recognition, lease accounting and end-to-end management of new subscription-based DSE offerings. These include Automated Revenue Management with SAP Revenue Accounting and Reporting (RAR), lease management and accounting with SAP Contract and Lease Management (CLM), and the portfolio of subscription management solutions in SAP Quote-to-Cash (formerly BRIM). As key elements of the overall SAP ecosystem, all these solutions provide integration capabilities of varying degrees with current SAP ECC and forward-looking SAP S/4HANA environments.
In addition to out-of-the-box implementations, the Bramasol team has developed a range of specific IP around enhancing the holistic deployment of these SAP solutions, including with legacy and/or third-party systems. For example, one of our clients, a global leader in medical equipment, has been able to enhance their equipment leasing programs by moving beyond a limited, customized third-party approach focused only on leasing to a more integrated approach with SAP CLM.
Using CLM, global companies are better able to manage lease classification such as sales type leases and operating leases, as well as to meet lessor accounting requirements of US GAAP and other country GAAP requirements, or IFRS mandates. Because the lease billing and revenue accounting can both be handled in CLM, with easy integration to SAP revenue recognition solutions, the overall process is much more efficient.
4. Closing and Reporting:
How can we shorten our periodic closing cycles while assuring reporting and disclosure compliance?
Financial closing and disclosure reporting processes have always been a challenging and unavoidable requirement for public companies throughout the world. It is critical to close the books in a timely manner with high accuracy and completeness, however in today's increasingly complex world, pulling all the relevant data together can be quite difficult. Some of the key challenges include:
- Complexity and Volume of Data: Handling large volumes of financial data spread across multiple systems increases the complexity of consolidation and reconciliation.
- Manual Processes: Reliance on manual data entry and spreadsheet-based reconciliations can be time-consuming and error-prone.
- Integration of Systems: Ensuring seamless integration between different financial systems or standalone software can be challenging, causing delays and errors in data transfer.
- Multiple Regulatory Compliance Mandates: Meeting regulatory requirements (e.g., GAAP, IFRS) for various countries and ensuring accuracy in financial reporting can add significant complexity and time to the close process.
- Communication and Collaboration: Coordinating across departments (finance, IT, operations) and ensuring clear communication can delay the close process if not managed efficiently.
- Process Standardization: Lack of standardized processes across different business units or regions can lead to inconsistencies and delays in the close process.
One of the primary difficulties in overcoming these challenges is the traditional separation between Operational Reporting for running the business vs. Statutory Reporting for meeting compliance mandates. There is not a compelling or logical reason for this separation between operations and compliance but it came about because of the different priorities between the "owners" of these systems.
Companies need end-to-end integrated solutions for revenue recognition compliance that fit seamlessly within both their existing operational and financial systems while providing the detailed information, audit trail, aggregation methodologies and advanced analytics to support disclosure reporting. In addition, companies need assurance that these end-to-end solutions are capable of being adapted and updated as compliance and disclosure requirements are fine-tuned or for special situations.
In order to deliver the full range of information in real-time and with agile manipulation of data for analysis, the Bramasol team has developed IP for analytics dashboards that are optimized for visualization, along with flexible reports and the ability to drill-through into front-line applications such as SAP Revenue Accounting and Reporting (RAR), SAP Contract Lease Management (CLM) and to drill back to General Ledger detail.
By leveraging SAP S/4HANA's seamless end-to-end ecosystem of solutions for operations, finance and compliance, plus Bramasol's purpose-built disclosure reporting solutions, CFOs and their staff are now able to manage both Operational and Statutory Reporting systems simultaneously, while eliminating any need for standalone or offline solutions.
5. Digital Transformation:
Is there a way to map out an incremental plan for migrating our business to S/4HANA? What are the options?
To support the accelerating adoption of S/4HANA Cloud Public and Private Editions, SAP and partners such as Bramasol have created a growing range of tools for modeling requirements, assessing the fit of various applications, and defining optimal roadmaps for managing the digital transformation process.
Key among these are SAP GROW and SAP RISE that help tailor your journey to S/4HANA. As shown below, GROW with SAP is designed to help companies quickly implement standardized processes in a seamless Greenfield path to SAP S/4HANA Cloud Public Edition. Alternatively, RISE with SAP provides a flexible path to S4/HANA Cloud Private Edition for companies that need more customization or even a hybrid Public and Private Cloud approach.
SAP S/4HANA Cloud's Digital Discovery Assessment (DDA) is another SAP tool that enhances decision-making processes to achieve your organization's objectives. It provides seamless visibility and valuable insights into the extensive array of capabilities offered by S/4HANA Cloud. The Bramasol team regularly uses DDA as a key scoping tool to help clients map out the best fit of SAP applications and to tailor the optimal mix for their specific requirements.
In addition, SAP Signavio solutions leverage business process intelligence technology to enable companies to understand quickly how an organization works and to model alternatives for managing change processes. Signavio can quickly extract and link online and offline data across different systems and system landscapes in order to model out the elements and implementation sequence for successful digital transformation.
Summary
We hope that you've found these questions and associated answers useful to better understand your options for implementing and optimizing Quote-to-Cash to Compliance processes. We thank the clients and partners who posed the questions and invite all of you to do the same. At least once a quarter, this Insights Series will include a similar post addressing the most pressing questions that we're hearing from you!
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