When a company needing to track deferred revenue gets to a certain size they often supplement QuickBooks by using Excel to track revenue deferral. Now there is an app that can automatically handle calculation and recording of deferred revenue to QBO.
ProRata was founded in 2014 by SaaS veterans to help companies simplify and automate their revenue recognition process. I spoke with Jacob Brown of ProRata at "Scaling New Heights" and had a demo of their software when I returned home. Based on this demo and the trial, I found this App is not only easy to set-up but it works very smoothly.
What makes the software particularly adaptable is the ability to use either the service date or the description field within a QBO invoice to determine the time period for the revenue recognition.
For example, you might specify in the setup that a particular service item is typically three months. When your record an invoice using this item with a date in the service date field, ProRata will calculate the revenue over three months from the service date.
Invoice using Service Date to calculate subscription period
Nancy_ProRata_01_Substitute
Another option is to put the length of the contract in the description field. For example, you might show the contract period as 7/10/17 – 10/9/17. You can also specify the length of the contract in words such as quarterly, annually, etc.
Each item in QBO can be setup in ProRata to have a different deferral period, and each item can use multiple deferral periods. In order to use ProRata, the items in QBO should be setup to record income to the deferred revenue account. Each item in ProRata can then be setup to record the journal entry from the deferred revenue account specified by QBO to a different revenue account on an item-by-item basis.
Mapping of Items & Services between ProRata and QBO
ProRata_Items
For those in the software industry, ProRata also provides industry measures such as MRR (monthly recurring revenue), ARR (annual recurring revenue), and churn (percentage rate at which customers cancel their recurring revenue subscriptions).
ProRata Revenue Dashboard
ProRata_Revenue_Dashboard
ProRata costs $3,000 a year for 1 – 200 customers ($250 month), which is reasonably priced compared to the next-level of software that includes deferred revenue within their feature set. It’s also important to note the pricing structure is based on customers that have deferred revenue, not total customers. There are also pricing models available for companies with more than 200 customers.
ProRata provides set-up telephone support as part of their package. By the time the demo and set-up were completed I felt confident I understand how to use the software.
This software has many other options, but hopefully this short introduction will give you an idea of how easy and flexible this App is to use.
If you have a client who needs deferred revenue recognition and are currently using complicated Excel spreadsheet now, this may be the solution that can make their process more efficient.
Nancy Orben Blue & Co.
With more than 30 years of accounting and auditing experience as a CPA, Nancy Orben is a Senior Manager at Blue & Co. LLC, a regional CPA firm with over 450 employees located in Ohio, Kentucky, Indiana and Texas. Nancy specializes in accounting software and consulting for a wide variety of businesses, focusing mainly on the construction, manufacturing and non-profit industries. She particularly enjoys working with U.S. subsidiaries of foreign corporations.
Nancy is advanced certified and/or certified in all QuickBooks software. She learns clients’ business processes and assists them with the use of their software. She performs QuickBooks data file conversions and third-party software integration with QuickBooks. Nancy works on accounting data re-creation projects for data-loss situations or litigation. She also assists with internal QuickBooks training and consulting for clients in the different markets Blue & Co. serves.
Editor's Note: ProRata is also currently in 'beta' with Xero for those of you who might be using the 'blue' logo vs. the 'green' one.
Revision: ProRata contacted Insightful Accountant and advised us that ProRata is now 'out of Beta' for Xero and the App is published to their App store. So that's even better news for you 'blue' logo users.