Milestone billing processes are an important way for contractors to manage invoice and payment cycles, ensuring cash flow. Current disruptions make nimble, milestone billing even more important then ever, though absorbing the revenue recognition guidance (ASC 606) from the Federal Accounting Standards Board (FASB) adds complexity. Experts share advice.
Time for Change?
If managing your back office feels way too complex these days, you’re probably not imagining things. Pros point out that the back office revenue systems of most contractors require work arounds to adjust for ASC 606—which challenge efficiency and make agility difficult:
Most accounting systems in use today were designed before ASC 606 was established. They contain a flaw because they were designed to trigger the recognition of revenue from the bill events. The separation of these schedules under ASC 606 breaks the architecture of these legacy systems.The new contract asset/liability disclosure requirement necessitates the maintenance of additional general ledger accounts that these systems do not contain. For these reasons, many companies have moved key revenue accounting processes back to spreadsheets or customizations, sacrificing agility and incurring risk along the way.
Though modernizing the revenue management system may seem like a daunting challenge, Pros say doing so may prove necessary for “cash flow, long-term growth, and reduced risk in these turbulent times” and summarize these benefits of revenue management systems designed for “the new world”:
The return to a higher level of automation preserves optionality in how contracts are constructed, freeing the front-office to react to the market. System modernization may provide a triple win by handling the certain increase in back-office complexity from a ‘freed’ front-office, while …mitigating risk of delayed or lost payments as well as risk of improper revenue recognition accounting. Systems typically provide capabilities to:
- Create tailor-made billing schedules for orders and contracts
- Schedule, generate, and deliver invoices based on specific dates, contractual commitments, and business requirements
- Allow billing to be separated from revenue recognition, with full unbilled accounting capabilities
- Enable tightly integrated analytics and reporting for additional visibility throughout the revenue management process
- Help manage change events, such as removed or added milestones, credits, cancelations, and a host of other post-processing events through to revenue recognition
As you think about how to build efficiency into every aspect of your business—and gain more control of company finances, don’t forget Colonial Surety is here to help. After qualifying forThe Partnership Account for Contractors®, in addition to having your surety line of credit in writing, you’ll have your own private digital dashboard, providing you with a day to day snapshot of your single and aggregate limits, as well as your current and available bond capacity. As your work in progress decreases, you can even update your work on hand—increasing your aggregate so you can go ahead and move that next bid ahead. Afterall, you’re in control.Get started in minutes today:
Of course having efficient and effective back office operations is critical for successful contractors—but don’t forge that communication errors—made by humans—remain a major factor behind payment problems. For Construction Pros observes:
Probably the No. 1 cause of payment issues in construction — across all sectors of the industry and in every part of the world — is poor communication. Whether it’s poorly written terms and conditions on your quotes that are ambiguous and hard to enforce or price increases that are not properly communicated, they all mean you will have delays getting paid for your work. To avoid communication errors, have your contracts and terms of quotation professionally drafted to ensure they are clear and enforceable. Make sure that all communication with your customers is done in writing — even if it’s just an email. That way, if there’s a miscommunication or dispute, you have something in writing to refer back to.
Documentation is essential for success—and so is knowing how to pick up the phone and talk through progress, challenges and opportunities. At Colonial, communication is important to us too. With The Partnership Account® you’ll have direct access to Colonial’s lead underwriter. Got a special need coming along, let’s talk about it. In fact, The Partnership Account® is full of tools to help you keep your business moving forward. For example, access your underwriting review, along with financial trends, bid spreads, credit scores and more straight from your own private owner’s dashboard. With all this useful data at your fingertips—and Colonial as your partner, you can better plan your bidding strategy, win more projects and increase your profits. Let’s get you growing today!
Founded in 1930, Colonial Surety Company is a leading direct seller and writer of surety bonds and insurance products across the USA. Colonial is rated “A Excellent” by A.M. Best Company and U.S. Treasury listed.