Close Credit Method and Revenue Recognition
Milestone billing follows certain rules with credit allocations:
- When a subscription is being closed, the application doesn't automatically calculate credit, except when the close credit method is Full. Thus, to give credit, you have to prorate the amount manually. You prorate manually by either making manual adjustments to the bill lines that aren't yet interfaced or by creating a manual credit memo, if bill lines are already interfaced to Accounts Receivable.
- When you give a credit to a bill line, the milestone name from the bill line is copied to the credit memo line.
Following are two scenarios with credit allocation on closure of subscriptions. Note that all values are based on the standalone selling price in Revenue Management.
Use Case: No Credit Given on Close
Let's see how the allocation of revenue changes when a subscription with an MBBRR template is closed with no credit.
In this table, consider an MBBRR template instance for a one-time charge: Professional Fee of $1,000:
| Type | Source | Milestone Name | Percentage | Completion Date | Allocated Amount in Revenue Management |
|---|---|---|---|---|---|
| Revenue | Manual | CRP | 40 | 1-Mar-20 | 400 |
| Revenue | Manual | UAT1 | 30 | 20-Oct-20 | 300 |
| Revenue | Manual | UAT2 | 20 | ||
| Revenue | Manual | GOLIVE | 10 |
The subscription is closed after 20-Oct-2020, say 10-Nov-2020. By 10-Nov-2020, only $700 is recognized, with two satisfaction events that have been interfaced to Revenue Management.
The contract value was $1,000. However, after termination, the revised contract value in the revenue contract is $700. This revision will be a Material revision.
Two more revenue milestones in the MBBRR template instance are not yet complete. The completion date of the milestones, UAT2 and GOLIVE, is set to the close date, 10-Nov-2020. The template will now look as shown in this table:
| Type | Source | Milestone Name | Percentage | Completion Date | Allocated Amount in Revenue Management* |
|---|---|---|---|---|---|
| Revenue | Manual | CRP | 40 | 1-Mar-20 | 280 |
| Revenue | Manual | UAT1 | 30 | 20-Oct-20 | 210 |
| Revenue | Manual | UAT2 | 20 | 10-Nov-20 | 140 |
| Revenue | Manual | GOLIVE | 10 | 10-Nov-20 | 70 |
| Total | 700 |
The two milestones, UAT2 and GOLIVE, are passed to Revenue Management with satisfaction dates of 10-Nov-2020, and with satisfaction percentages of 20% and 10%, respectively.
Use Case: Full Credit Given on Close
Now let's see how the allocation of revenue changes when a subscription with an MBBRR template, is closed with Full credit.
In this table, consider an MBBRR template instance for a one-time charge: Professional Fee of $1,000:
| Type | Source | Milestone Name | Percentage | Completion Date | Allocated Amount in Revenue Management* |
|---|---|---|---|---|---|
| Revenue | Manual | CRP | 40 | 1-MAR-20 | 400 |
| Revenue | Manual | UAT1 | 30 | 20-OCT-20 | 300 |
| Revenue | Manual | UAT2 | 20 | ||
| Revenue | Manual | GOLIVE | 10 |
The subscription is closed after 20-Oct-2020, say 10-Nov-2020, with Full credit as the credit method. By 10-Nov-2020, only $700 is recognized, and this has to be revised to 0.
The contract value was $1,000. However, after termination, the revised contract value in the revenue contract is 0. This revision will be a Material revision.
Two more revenue milestones in the MBBRR template instance are not yet complete. The completion date of the milestones, UAT2 and GOLIVE, is set to the close date, 10-Nov-2020. The template will now look as shown below:
| Type | Source | Milestone Name | Percentage | Completion Date | Allocated Amount in Revenue Management* |
|---|---|---|---|---|---|
| Revenue | Manual | CRP | 40 | 1-Mar-20 | 0 |
| Revenue | Manual | UAT1 | 30 | 20-Oct-20 | 0 |
| Revenue | Manual | UAT2 | 20 | 10-Nov-20 | 0 |
| Revenue | Manual | GOLIVE | 10 | 10-Nov-20 | 0 |
| Total | 0 |
The two milestones, UAT2 and GOLIVE, are passed with satisfaction dates of 10-Nov-2020 to Revenue Management with satisfaction percentages of 20% and 10%, respectively.