Our previous post taught us how Zoho Billing makes life easy for businesses with its automated revenue recognition rule. However, certain businesses have more challenges that an automated system cannot handle, and there are certain situations where automated revenue recognition is not feasible. For example, construction services paid in advance but with uncertain start dates can make the revenue recognition rule look inappropriate. Some manual interventions are needed to handle this scenario.

Manual revenue recognition in Zoho Billing helps you handle these uncertainties. It is used when the timing and amount of revenue cannot be determined accurately through automated rules. This is common in industries such as construction, where project completion is tied to milestones that may occur at irregular intervals.

Example 1:

Imagine a construction firm signs a $50,000 contract to renovate a commercial building. The client pays the entire amount upfront, but the agreement specifies that the revenue will be recognized only as key project stages are completed. Each milestone carries a defined value or percentage of the total contact, say,

• Design & Approval Phase: $5000

• Demolition & Site Preparation: 30% of the total contract value

• Structural & Roofing Work: 40% of the total contract value

• Interiors & Handover: 100% of the remaining
  

The company ensures that its financial statement accurately reflects real project progress by only reporting revenue when each phase is completed, rather than relying on an automated schedule that may not match the actual work done.

If you look at the revenue recognition report, it will show up like this,

i) Recognized Revenue Report

At the end of the project,

ii) Deferred Revenue Report

As the project progresses, deferred value gets recognized.

iii) Revenue Waterfall Report

The project owner ensures that revenue is recorded accurately only after each milestone is completed, and this is done manually without any specific frequency.

Example 2:

A software consulting firm signs a $120,000 contract to implement an in-house ERP solution with a client. The client pays the amount upfront, but the project involves phases that don't follow uniform timelines/deadlines.

The defined timelines are,

• Requirement Analysis & Resource Planning: $10,000

• System Customization: 25% of the total contract

• Testing & QA: 35% of total contract

• Deployment & Support: Remaining contract value

When you look at the revenue recognition report for this software deployment, it will show up as follows,

i) Recognized Revenue Report

At the end of the deployment,

ii) Deferred Revenue Report

As the development progresses, deferred value gets recognized.

iii) Revenue Waterfall Report

Manual revenue recognition is critical when automated rules don't serve the purpose. As we saw through construction and IT consulting examples, Zoho Billing allows businesses to recognize revenue at the right amount and time, ensuring financial statements remain aligned with real project progress.