Stripe Adds a Revenue Recognition Tool for Merchants That Book Sales Over Time

Online payments powerhouse Stripe Inc. Tuesday introduced Stripe Revenue Recognition, an application intended to automate the mapping of money to a balance sheet. 

The development of Revenue Recognition was spurred by the accounting needs of merchants and businesses that are paid upfront for goods and services to be delivered in the future or over an extended period of time. These include software-as-a-service providers, SaaS, subscription, and e-commerce companies, all of which need to consolidate transactions in one place, appropriately categorize transactions, and automatically generate auditable reports. 

For example, an e-commerce company would recognize revenue not when a customer clicks “purchase” or when a product is shipped, but when a product is actually received by the customer. For a SaaS company, if a customer pays $120 for an annual subscription on Jan. 1, that revenue would be recognized not on a single date, but as $10 each month for the subsequent 12 months. 

As a result, users get an accurate representation of their profits because the correct date revenue is logged into the balance sheet. But, more often than not, manual mapping of revenue to a balance sheet results in errors and creates operating inefficiencies, Stripe argues.

In addition to providing an accurate representation of profits, Revenue Recognition gives merchants and businesses the ability to comprehend their financial data in a standardized format in accordance with Generally Accepted Accounting Principles (GAAP). 

“Recurring-revenue businesses have to account for contract changes such as upgrades, downgrades, prorations, and cancellations, and it can be challenging to ensure accurate recognition of physical or digital goods that are paid for prior to a customer actually receiving them. [In addition], fulfillment and order information have to be reconciled to enable compliant revenue reporting,” Vladi Shunturov, product lead at Stripe, says by email. 

“Part of the challenge is that complexity compounds with scale, just as you’re expanding your business and are focused on growth. Revenue Recognition was built to solve these pain points, and provide a comprehensive view of our users’ financial health in one place,” Shunturov adds.

Designing and building a revenue-recognition solution alongside a business’s billing platform creates near-complete automation for accruals accounting, Stripe says. “Revenue Recognition was built to solve these pain points, and provide a comprehensive view of our users’ financial health in one place,” Shunturov adds.

The app’s reporting tools can generate balance sheets, income statements, revenue-waterfall tables, as well as other types of financial reports. In addition, all transactions and payments changes occurring in Stripe are automatically accounted for in reports. Users can also import non-Stripe transactions. Users can adjust reports to accurately account for deferred revenue, exclude certain types of revenue, and pass through fees. Businesses can also achieve compliance with global standards like ASC 606 and IFRS 15 with audit-ready statements, Stripe says.

“Many of our users shared the toll of the countless hours of productivity loss for recognizing contracts, subscriptions, invoices, and transactions across multiple systems,” Shunturov says. “Because Stripe manages most of our users’ revenue data, we felt that this is an area where we can help.”

Stripe piloted Revenue Recognition within Stripe Billing, which helps businesses more easily create and manage subscriptions with flexible billing logic, and rolled the functionality out as a separate application based on user requests, Shunturov adds. 

Earlier this year Stripe introduced Stripe Tax, an application that allows merchants to automatically calculate and collect sales tax, value-added tax (VAT), and goods-and-services tax (GST) in the United States and more than 30 other countries.