NetSuite Advanced Revenue Management (Essential)

In the world of finance, accurate revenue management is crucial for maintaining financial health and compliance. NetSuite’s Advanced Revenue Management (ARM) takes traditional revenue management to the next level, offering automation, flexibility, and compliance. Let’s dive into the essentials of ARM and walk through the setup and configuration process.

 

What is Revenue Management?

Management of revenue is a crucial strategic procedure. It comprises tracking and assessing revenue over a period of time. It's not simply about keeping track of sales. The focus is on making sure that revenue follows specific accounting standards and truthfully represents the value of the services or products offered. This means carefully considering when revenue is recognized to accurately reflect when services or products are delivered. Revenue management is all about keeping accurate and clear financial records to support a business's overall financial health and success.

 

Advantages of Advanced Revenue Management

Advanced Revenue Management (ARM) improves traditional revenue management by automating complex recognition processes, increasing accuracy, and ensuring compliance with evolving accounting standards. ARM offers a more flexible and detailed approach, accommodating various revenue scenarios that traditional methods may find challenging.

 

Benefits of Advanced Revenue Management Feature

• Accuracy: Minimizes manual errors and ensures compliance with standards like IFRS 15 and ASC 606.
• Efficiency: Automates complex revenue recognition tasks, saving time and reducing administrative overhead.
• Compliance: Adapts to accounting standards, ensuring your financial practices meet regulatory requirements.
• Visibility: Offers detailed insights and reporting, helping you understand revenue trends and performance.

Setup for Advanced Revenue Management (Essential)

To successfully implement Advanced Revenue Management (ARM) in NetSuite, it is essential to follow several key steps in order to ensure a seamless setup process.

 

Prerequisite

Activating Advanced Revenue Management (Essentials) in NetSuite requires first activating the Accounting Periods capability. This setup ensures that revenue is recognized and reported accurately according to your defined fiscal periods.

 

Enable Feature

The first step in setting up ARM is to enable the feature within NetSuite.

1. Navigate to Enable features: Go to setup, then company and click on enable features.
2. In the Accounting tab, locate the Advanced Revenue Management section.
3. Now find the checkbox named "Advanced Revenue Management" and check it.
4. Click “Save” to apply the changes.

Accounting Preference Configuration

To configure ARM in NetSuite, below are some of the important fields to adjust the following accounting preferences: 

Navigation: Navigate to setup then accounting and click accounting preferences

1. Accounts (Item/Transaction Subtab)

      Default Deferred Revenue Account -

• Options: Select from available accounts
• Explanation: Sets the default account for deferred revenue on sales transactions.

2. Revenue Recognition (General Subtab)

Create Revenue Recognition Journals in GL

• Options: Detail, Summary
• Explanation: Determines the level of detail for revenue recognition and reclassification journal entries.

Default Revenue Recognition Journal Date to

• Options: Last Day of Period, Current Date
• Explanation: Sets the default transaction date for revenue recognition journal entries.

Default Deferred Revenue Reclassification Account

• Options: Select from available accounts
• Explanation: Sets the default account for deferred revenue reclassification.

3. Advanced Revenue Management Only (General Subtab)

Revenue Arrangement Update Frequency

• Options: Manual, Automatic
• Explanation: Indicates the frequency of updates to revenue agreements.

Default Revenue Arrangement Form

• Options: Standard Revenue Arrangement, Custom forms
• Explanation: Selects the default form for revenue arrangements.

Unbilled Receivable Adjustment Journal Grouping

• Options: Element, Arrangement, Sub Arrangement Group
• Explanation: Defines how unbilled receivable adjustments are grouped for journal entries.

Contract Acquisition Expense Account

• Options: Select from available accounts
• Explanation: Selects the account for the costs associated with contract procurement.

Enable Advanced Cost Amortization

• Options: Checked or unchecked
• Explanation: Activates accrual and amortization of sales costs related to contracts.

 

Item Configuration

Ensure that items (products or services) are set up correctly for revenue recognition:

1. Navigation: Navigate to the list of items through the list then accounting and find the item.
2. Select an item and ensure its configured to use a revenue recognition template or schedule.
3. If not configured, then click on edit and scroll down to Advanced Revenue Recognition.
4. Configure Revenue Recognition Rule, REV REC Forecast rule, Income account and deferred revenue account and required things.

Advanced Revenue Recognition Working Cycle

NetSuite's Advanced Revenue Management (ARM) simplifies the intricate process of revenue recognition, ensuring compliance with standards like IFRS 15 and ASC 606. Here’s a straightforward guide to understanding the Advanced Revenue Recognition Working Cycle:

1. Creating a Sales Order

The revenue recognition cycle begins when a sales order is created. This document captures the details of the sale, including the products or services sold, quantities, and prices, setting the foundation for how and when revenue will be recognized.

Process: Enter the sales order details into NetSuite to initiate the revenue recognition process, which helps determine the timing of revenue recording based on the sale’s terms.

2. Generating a Revenue Arrangement

Once the sales order is approved and fulfilled, NetSuite automatically generates a revenue arrangement. This document outlines the schedule for recognizing revenue from the sale.

Process: The revenue arrangement is created automatically if ARM is configured correctly, detailing how and when the revenue will be recognized in alignment with the delivery of products or services.

3. Defining Revenue Elements

The revenue arrangement is divided into revenue elements, which represent distinct parts of the sale, such as individual products or services.

Process: Revenue elements are used to track each component of the sale separately, allowing for detailed revenue recognition for each part, such as different items or services included in the sales order.

4. Choosing a Revenue Recognition Method

The revenue recognition method determines how and when revenue is recognized for each revenue element. Common methods include Percentage of Completion, where revenue is recognized as work progresses, and Straight-Line, where revenue is evenly distributed over time.

Process: Select the appropriate recognition method during item configuration or within the associated revenue recognition rule to influence how revenue is recorded in financial reports.

5. Applying a Revenue Recognition Rule

The revenue recognition rule specifies the criteria and schedule for recognizing revenue based on the selected method. This ensures consistent and accurate revenue reporting.

Process: Define the recognition rules to detail how revenue should be allocated and recognized, such as recognizing subscription revenue monthly over a year.

6. Creating Revenue Plans

Revenue plans are developed based on the revenue arrangements and elements. These plans outline the specific timing and amounts for revenue recognition.

Process: Develop revenue plans that schedule the timing and amounts of revenue recognition to ensure each portion of revenue is recognized according to the established rules and timings.

7. Generating Journal Entries

Journal entries are created to record the financial impact of revenue recognition. These entries ensure that revenue is accurately reflected in the financial statements.

Process: NetSuite generates journal entries based on the revenue plans and recognition rules, ensuring that revenue is recorded in the appropriate accounting periods.

8. Generating Revenue Reports

Finally, reports are generated to provide insights into revenue recognition and overall financial performance. These reports track recognized and deferred revenue and help in making informed financial decisions.

Process: Generate and review revenue recognition reports to assess performance, ensure compliance, and analyze financial data.

 

Advanced Revenue Management (Essential) Reports

NetSuite’s Advanced Revenue Management (Essential) feature provides comprehensive reports that give you detailed insights into revenue and deferred revenue across different dimensions. These reports are designed to enhance financial accuracy, streamline revenue management, and support strategic decision-making.

 

Revenue Reports

1. Revenue Report by Customer

This report details the revenue generated from each customer, helping you identify high-value clients and optimize your sales strategies to boost customer engagement and revenue growth.

2. Revenue Report by Item

This report breaks down revenue by individual items or services, allowing you to evaluate the performance of each product and make informed decisions about inventory management and pricing.

3. Revenue Report by State

It offers a geographical breakdown of revenue by state, assisting in the development of regional sales strategies and ensuring compliance with state-specific financial regulations.

 

Deferred Revenue Reports

1. Deferred Revenue Report by Customer

This report tracks deferred revenue for each customer, providing insights into revenue that has been received but not yet recognized, which helps in managing cash flow and financial accuracy.  

2. Deferred Revenue Report by Item

This report details deferred revenue associated with specific items or services, aiding in accurate revenue recognition and helping to plan future financial reporting effectively.

3. Deferred Revenue Report by State

It provides an overview of deferred revenue by state, ensuring accurate recognition and compliance with state-specific requirements while supporting regional financial planning.