This article provides an overview of steps to take when first setting up revenue recognition and MRR in ScaleXP.  For an overview of revenue and customer reporting options, see Customers tab: where to configure and review revenue and customer information, MRR, ARR. 

Before configuring reports, we recommend you validate the data in ScaleXP to ensure you have a clean starting position and are using best practices to ensure accurate data going forward.  

A one time clean-up will ensure your revenue recognition schedule is accurate, which will provide accurate customer numbers (Active, New, Lost, Upsell, Downgrade & Reactivated) as well as Deferred Revenue,  Accrued Revenue, MRR and ARR. 

Follow these steps to configure your revenue recognition data when connecting to ScaleXP for the first time:

First, apply relevant filters to your reports

This will enable you to review your revenue recognition and make necessary adjustments.

See How to view MRR and/or deferred revenue by income type; how to filter accounts on the Customer page.  

By default all accounts are included until at least one is ticked, then only the ones marked with a blue tick box are included.

• Set your Revenue Recognition and IFRS / GAAP report for any accounts you want to include in journals for deferred and/or accrued revenue;
• Set your MRR and ARR reports for recurring revenue accounts you want included in your MRR and ARR KPIs and churn analysis.

Once you've applied and saved your filters, you're ready to review the Revenue Recognition table month by month for each customer.  When you have this working as expected, changes made to Start Dates, End Dates, and all types of Account Rules will automatically be applied to all revenue recognition reports and metrics across the system.

Next, learn how ScaleXP allocates revenue

ScaleXP uses artificial intelligence to calculate your revenue recognition from the text on your invoices. 

• It is common that historical invoice formats contain several data points which can cause conflicts and cause your revenue recognition to look off. 
• We highly recommend spot checking or reviewing all invoices for a time period to see how ScaleXP is interpreting your invoices.

See how ScaleXP reads the data and text from your invoices here: How ScaleXP reads dates.  

This article contains best practices for line item dates and descriptions and several examples of good and bad invoice line item description.   

You can also choose to set rules for revenue allocation - 

• For rules that apply at account level, see How to set rule based revenue allocations and How to set up a complex, multi-tiered revenue allocation rule;
• For rules that enable you to allocate for each invoice line item, see How to set up usage based revenue recognition; How to allocate revenue by percent completion.

Finally, review your revenue reports and make any necessary adjustments

Check recognition dates

If your historic invoice formats are not clear (see above), ScaleXP may not accurately capture the revenue recognition period.   

It is highly recommended you review all invoices which do or should impact the current fiscal period.

We suggest you do the following using your Revenue Recognition report:

• Pick an important period like the previous 12 months
• Review the revenue schedule customer by customer, month by month
• Click the dropdown arrow next to each customer to review the invoices
• Look for invoices showing revenue in a period they shouldn't
• Look for invoices not showing revenue in a period they should
• Review the Customer Numbers (Active, New, Lost, Upsell, Downgrade, Reactivated) to ensure they look as expected.

If you need to change revenue allocation dates, you have several options.  You can correct each invoice, correct many invoices, or request a manual upload. Read more about those options here: The system has not recognised dates correctly.  Why? How can I change them?   

You can also choose to set an account rule or allocate revenue specific to each invoice (usage based).  See below.

In the table, next to any customer, you can see a down arrow to show all the invoices referenced in the revenue table. 

Click on any invoice to see the invoice and line item details, including how ScaleXP has interpreted the spread of revenue.

• If no rule is set, ScaleXP will spread the revenue from the Start Date to the End Date according to the rules in How does ScaleXP allocate the spread of revenue - and how does the system defer revenue? 
• If there is a rule set, then you will see a symbol instead of an End Date - or Start Date and End Date.  Click on the symbol to see he applicable rule.

Add automation rules where relevant

You may want to set rules for revenue allocation rather than use text recognition on the line item.   There are many options for setting rules.

For rules that apply at account level, see How to set rule based revenue allocations and How to set up a complex, multi-tiered revenue allocation rule. 

For rules that enable you to allocate for each invoice line item, see How to set up usage based revenue recognition; How to allocate revenue by percent completion.

Review practices for future invoices

You may want to change your ongoing invoice format so revenue recognition is automated more efficiently, for example:

• Use the best practices in How ScaleXP reads dates and include clear and concise descriptions of line items, with limited data points.
• Separate recurring revenues and one time revenues into separate GL accounts.  This enables more flexibility in generating automated metrics like MRR, ARR and churn.
• Make use of QuickBooks Classes or Xero Tracking Codes to increase the options for automating metrics and reporting.

Review customer numbers and revenue retention information 

This can be found in the summary tables at the top of the Customers tab.

See Customer page summary reports and how they are calculated: how to analyse new, lost, upsold, downgraded, active customers and revenue changes.

Check the default reports and dashboards to validate MRR, ARR, churn, revenue retention and all other affiliated calculations look accurate.  

These metrics rely on a baseline of proper GL structure, proper configuration of ScaleXP and cleaned up data.  You must clean your data before relying on the metrics in the system

See How to change MRR  for more information on setting and changing MRR and related metrics.