It arrived a few years ago to stay. The subscription model has been accepted by companies and individual users for its flexibility, its alignment with production, the lack of leverage, and the ease and speed of contracting, especially in digital products.
In the subscription-based economy, commercial activity is focused on getting customers to subscribe to their services.
[su_note note_color=”#F0EFEF” text_color=”#333333″ radius=”5″ class=””]
window.hsFormsOnReady = window.hsFormsOnReady || []; window.hsFormsOnReady.push(()=>{ hbspt.forms.create({ portalId: 7555051, formId: "69ee043b-74a0-4723-8133-9ea7d8275ca1", target: "#hbspt-form-1784418799000-1919423552", region: "na1", })});
[/su_note]
Advantages for the customer and complexity for the seller of the subscription model
The main advantages for the selling organization are the security and predictability of revenue and cash flow, but it entails challenges related to IT systems for contracting, billing, and collection of acquired services.
It is not uncommon for customer offers to be made in an innovative way to adapt to the different scenarios associated with each customer profile: from no-commitment contracting to annual commitments; annual/quarterly or monthly billing and collection; contracting a base rate and supplementing it with various options that depend on different factors, with or without prerequisites; volume discounts; upgradable according to contract duration; etc.
This is one example, and not particularly the most complex one that can arise.
Company A sells various solutions, composed of software applications and hardware devices, all cloud-based and grouped into a variety of combined subscriptions.
The pricing model for these combined offerings can be complex, with tiered pricing requirements based on total contracted volume.
In the end, for the customer it is simply a convenient subscription for which they pay a fee annually in advance, or quarterly or monthly. However, Company A must have the appropriate business management system to handle billing based on complex tiered pricing of combined contracts and payment deferrals.
The solution is Dynamics 365 Finance
Now Dynamics 365 Finance incorporates subscription billing and revenue management capabilities integrated into the base offerings as part of the Dynamics 365 Finance license.
The addition of this new functionality means you no longer need to look for partner solutions or external third-party applications to address subscription business needs. This new Dynamics 365 module and its features are specifically designed to handle all the complexities related to billing and collections management for any subscription business.
Following the philosophy of Microsoft Dynamics 365, the new module includes analytics and insights to help company executives make decisions with the best information.
How the subscription management module works
The new subscription management module is much more complete and supersedes the capabilities of the previous revenue recognition module. So you will first need to disable the revenue recognition module in the application before you can enable the new subscription management capabilities.
The three main features of the new subscription management module are as follows:
- Recurring contract billing
This is the central point of the subscription management system.
At this point, the contract structure is defined and the key billing parameters are established: customer account, terms, line items, dates, installments, prices, billing type, billing frequency, schedule, deferral requirements, renewals, and terminations.
Here, billing schedules are created for customer contracts and complex pricing and billing processes are automated, while consolidated invoices are also produced for customers with multiple services in their contracts.
In the case of existing contracts, this part of the module will allow us to view the created billing schedule and its associated details, configure advanced pricing options, manage escalations and discounts and deferral requirements, place contract lines on hold, and process terminations.
Dynamics 365 will allow you to preview invoices by individual lines or consolidated by item or period before creating them, choose which transaction model to use to create the invoice (sales order, free text invoice), and choose whether to create the invoice lines for additional review or post them directly.
- Revenue allocation and multiple contract management
This part of the subscription management module aims to automate pricing and revenue allocation across multiple items. With this functionality, you can also configure multiple-element contracts and defer them using billing schedules.
- Revenue and expense deferral
Finally, this functionality allows organizations to manage the deferral of revenues and expenses to comply with local tax regulations.
In the constant evolution of regulations in the subscription economy, this functionality will help your finance teams use fewer manual spreadsheets and allows them to manage them directly in the system. You can configure the system to automate deferrals across a variety of different transactions such as sales orders, purchase orders, general journals, and manual invoice journals.
You can choose deferral following linear models or event-based models associated with the contract, and also configure advanced parameters to manage the deferral of discounts associated with revenues and expenses.