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Increasing contract complexity under ASC 606

In this series on the decision making around supporting ASC 606 with revenue recognition automation software, the project manager assesses the second identified issue, the growing complexity of contracts. Whilst looking at automation as one option, the other option under consideration was simplification of sales contracts. In the age of flexibility and customer driven service the revenue team looked hard at the companies ability to transform and simplify the way they conducted business.

Business transformation to reduce contract complexity

“Our customers are fairly large. They spend large dollar volumes. They have contracts specifically based around their needs.”

Q: As your company has expanded has the revenue growth come from business sales growth or is there another driver?

Our revenues have gone up very significantly, but so has the complexity of our contracts. In a perfect world we would have loved to have become more efficient in our use of resources – in an economies of scale approach. Some of the increase is natural because our sales volume went up, but we also do believe a percentage of it went up because the contracts became more complex.

Some of that is our internal doing. Instead of standardizing our product offerings, or unbundling offerings, we have customized them on a customer by customer basis. Each contract, for instance, may have a unique unbundling instead of following a similar pattern to the previous one.

Q: Do you think this contract complexity trend will continue or will you be able to influence the business team to simplify?

Our customers are fairly large. They spend large dollar volumes. They have contracts specifically based around their needs. Some of the things we offer on one contract are materially not different than another contract. And so to the extent that we could offer them something equivalent – that we have already configured our system for – might be a better solution. That is what we are hoping for the future. With RevStream we will be able to point out more specifically to our sales teams what the impact of having these different arrangements means to our business. We are hoping (over time) to get some normalcy to the contracts we offer.

Continue the story:

Heavy reliance from finance on IT for system configuration

Download the full series of Issues Revenue Management Teams Face – ASC 606


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