The last decade has seen a significant change to the way buyers want to purchase and consume products and services. Both businesses and consumers have flocked to a subscription-driven purchase of services and, perhaps more interestingly, goods (both the products themselves, and complementary services associated to the goods).
Whilst there has already been a shift in behaviour, we are still seemingly in the developmental phase of the subscription economy with research suggesting that the global value of the market will more than double from $650 billion in 2020 to $1.5 trillion by 2025.
There is no doubt that subscriptions are more lucrative for the businesses offering them in the long-term, but it does introduce complexity to several functions which up until now have been fairly standard: cashflow management and revenue recognition just to name a few.
In this article, we discuss what subscriptions mean for the businesses supplying them and how NetSuite, combined with ZoneBilling can help manage the financial aspects of the process, including forecasting, delivery, reporting, and revenue recognition.
What challenges does subscription billing present to businesses?
This is undoubtedly too big a question to answer in one section of one blog article, but we can hopefully address some of the most important and challenging elements.
Delivery & Business Model
Basically, these are the questions to ask about your business model: what are you delivering? Does subscription billing fit? Are you able to deliver against customer expectations without drowning yourself in admin?
Whether you are providing a traditional intangible or service offering which aligns well with an ongoing billing process by default, or you are introducing a new subscription approach, you need to ensure you have the correct stock or service matrix, team, and systems in place to match the demand and client expectations.
The lifeblood of any business. We can keep this section short and sweet – it’s probably obvious, but again, not to be overlooked.
The financial value in subscription-based businesses is driven by the long-term (potentially infinite) income generated by the recurring revenue. From managing staffing costs to expenses, decisions can be made with much more certainty knowing that (hopefully) large amounts of revenue are coming regularly as opposed to an on/off type situation.
So, when introducing a subscription model, it’s imperative to ensure you have the cashflow to cover costs whilst you build up the bank balance on retainers.
Recurring revenue, revenue recognition and legislation
Financially, operationally, and legislatively, managing recurring revenue is not as straightforward as you may think.
In terms of the practical element of collecting the cash – you have options of whether to bill in lieu or in advance. By default, a subscription usually means a minimum of 12 invoices per year. To be successful, you need to sell a lot of subscriptions. So, straightaway the amount of paperwork and admin you have is usually significant.
Furthermore, in the last 10 years, the legal requirements for managing revenue recognition have, and are becoming increasingly more stringent.
At the risk of oversimplifying, revenue recognition relates to the recording and reporting of revenue based on the date of deliverable as opposed to date of bill and/or payment. So, a 12-month contract worth €12,000 sold in the last month of the financial year cannot be recorded with a value of €12k. It should be recognised as €1k in the current year, with €11k to be recognised in the following year at €1k per month. Similarly, to the previous two points, it’s incredibly important to ensure that you both understand the practical and legal implications of implementing subscription billing as well as having the technology to manage it.
How does NetSuite & ZoneBilling help?
The good news is that NetSuite is one of the best ERP solutions on the market for managing complex financial set-ups, including billing.
In addition to the deep finance functionality NetSuite boasts as standard, its single database, configurable interface, and workflow engine provides an ideal and agile platform for scaling businesses who invest to ensure automation and visibility of critical information is at the heart of their growth.
Subscription billing though, due to the legal and financial requirements detailed above, coupled with the number of variables a company may want, or need, to include when introducing its own subscription based offering, can make it near impossible for an off-the-shelf finance solution (in this instance, NetSuite) to cover all bases for every eventuality as standard.
Built specifically for NetSuite, and natively in NetSuite (meaning that it functions completely within the core NetSuite interface and database), ZoneBilling provides an unrivalled engine to create, send, and recognise invoices however you need to, as part of your standard financial management processes within NetSuite.
Using custom subscription records developed within NetSuite, ZoneBilling provides a range of templates for common billing scenarios off-the-shelf, but it also enables users to create subscription schedules and rules for everything they need, from standard subscriptions to complex multi-tier contracts.
Subscriptions are configured by selecting the correct combination of subscription items within each record which are then automatically applied at the appropriate times in the sales and billing process. From there, everything from revenue recognition to additional sales, co-termination contracts, renewal processing and repeat billing are managed and reported on to line-level detail, all completely within NetSuite.
So, whether you are currently offering subscriptions and struggling to keep up, or you are looking to introduce subscriptions into your business, NetSuite and ZoneBilling will give you everything you need to enable you to focus on increasing subscriptions (as opposed to managing them in your administration).
Learn more from Novutech & Zone & Co:
If you’d like to learn more about how Novutech and Zone&Co partner to implement billing and lead-to-revenue solutions for scaling businesses, click here to join Jan Snyers (Director of Sales & Marketing, Novutech) and Dominic Reid (Global Strategic Alliances Manager, Zone&Co) on Thursday 29th June for a detailed discussion on the future of the subscription economy and how to be prepare for it, including a brief introduction to ZoneBilling.
Don’t miss out on this opportunity to gain valuable insights and ensure your company is equipped with the right tools to flourish in the subscription economy. Watch the replay of our webinar!
About Zone & Co
Zone & Co is a leading provider of cloud-native software solutions on the Oracle NetSuite platform. Zone Apps simplify financial and HR workflows, including billing, reporting, AP automation, payments, reconciliations, approvals, payroll and leave management. With over 1,500 customers worldwide, Zone & Co helps businesses work smarter and maximize platform value.
Learn more at www.zoneandco.com or follow Zone on LinkedIn: linkedin.com/company/zoneandco.