Subscriptions have traditionally been associated with rentals or memberships, prevalent in industries such as magazines or health clubs. However, in today’s world, subscription services have become ubiquitous.
From member-based warehouse stores to various entertainment subscriptions, the subscription economy has permeated all aspects of our lives.
Moreover, the concept of offering physical products as a service is gaining momentum. The subscription economy is a significant trend that is here to stay and is continuously expanding.
A recent study reported that the subscription economy is expected to grow by 18.5% year over year. Recognizing this shift, the Microsoft team has prioritized ensuring that Dynamics 365 can support customers in adapting to the changing economy and provide effective solutions for managing subscription contracts.
Challenges
While Dynamics has offered traditional sales order and invoice processes primarily focused on AR (accounts receivable) trade, it does not account for the complexities of reallocating revenue as mandated by accounting standards such as ASC606/IFRS 15.
As a result, many companies have resorted to using reports and offline spreadsheets to manually perform intricate revenue reallocations, often with only monthly true-up entries. The evolving accounting requirements have necessitated the recalibration of error activities to adhere to a set of figures based on regulatory standards.
In the context of subscription billing, the conventional approach of a single discrete event for posting revenues to a single account falls short. In reality, revenue must be distributed across multiple periods in subscription billing scenarios. Without a dedicated subscription billing feature, businesses are left to manually track the calculations required to defer or accrue revenue over these periods.
This manual tracking and calculation process poses scalability challenges, even for smaller businesses.
Common Business Ese Cases
The Subscription Billing module is designed to cater to specific business models. Here are some examples of the types of companies that can benefit from this offering:
- Companies with Subscriptions: This includes businesses that offer recurring software subscriptions, physical item subscriptions, rental storage, or recurring fees for equipment rentals.
Companies with Milestone Billing: This comprises of businesses that require billing at specific milestones such as equipment installation, service completion, or other professional services.
- Companies with Usage-Based Billing: These are businesses that bill their customers based on criteria such as professional service hours provided, consumption, or data usage.
- Companies with Deferrals: These are businesses that bill for an item annually but need to recognize equal amounts of revenue each month over the contract term.
- Companies with Accruals: This refers to businesses that bill their customers in arrears and need to recognize revenue before they invoice the customer.
- Companies that Reallocate Revenue: This category includes companies that must reallocate revenue either due to ASC 606, IFRS 15, or internal accounting requirements. This also applies to companies that require a further breakdown of bundles/kits for royalties, commissions, or other internal purposes.
These are just a few examples of the types of businesses that can benefit from the Subscription Billing module in Dynamics 365 Finance.
Features
Recognizing the necessity and intricacies involved, let’s explore the new subscription billing features integrated into the Dynamics 365 Finance app.
These features have been developed to address the needs of the subscription economy, where subscription-based revenue serves as either the primary or ancillary revenue source. The key features include:
- Subscription Billing Schedules: This feature facilitates the creation of schedules for subscription billings.
- Generation of Invoices Against Schedules: Allows for the automated generation of invoices based on the defined billing schedules.
- Handling of Deferred Revenue: Provides functionality to manage and account for deferred revenue in accordance with accounting standards.
- Bundles: Offers support for bundling multiple items or services within a single subscription package.
- Accruing Unbilled Revenue: Enables the recognition and management of unbilled revenue that has not yet been invoiced.
- Revenue Reallocation: Facilitates the reallocation of revenue as necessary to comply with accounting standards or other internal requirements.
These features are designed to streamline and automate subscription billing processes, ensuring that businesses can effectively manage the complexity of revenue recognition and subscription-based revenue streams within Dynamics 365 Finance.
Subscription Billing Module
Highlighted as a new menu item within the Finance and Operations product, the subscription billing functionality is now available. The integrated module effectively combines three distinct modules into a single interface, as depicted in the collapsed menu structure:
- Recurring Contract Billing: This module empowers users with the capability to manage recurring billing and pricing, allowing for control over billing parameters, contract renewal, and the generation of consolidated invoices.
- Revenue and Expense Deferrals: By automating processes and reducing reliance on external systems, this module enables efficient management of revenue and provides real-time visibility into monthly recurring revenue.
- Multiple-Element Revenue Allocation: Designed to facilitate revenue compliance, this module handles pricing and revenue allocation for multiple items, ensuring adherence to regulatory standards and internal requirements.
The consolidation of these modules into a single interface aims to streamline subscription billing processes and provide comprehensive support for revenue management within Dynamics 365 Finance and Operations.