SaaS Case Study
SmartEquip Automates Revenue Recognition and Contract Management
Lowering DSOs and Scaling without Adding FTEs
Summary
Order-to-Cash Automation
SmartEquip implemented Ordway to automate its order-to-cash process, which, in the early days of the company, was run on spreadsheets and QuickBooks invoicing. Many of the company’s customers are large multinational organizations with MSAs and multiple addenda, which creates challenges for both contract management and revenue recognition.
SmartEquip selected Ordway for the strength of its product and its high-touch support model. Since implementing Ordway, SmartEquip has doubled its customer base and scaled its finance operations without adding headcount. The company has also been able to lower its days’ sales outstanding through accelerated collections.
The client
About SmartEquip
SmartEquip is a parts procurement and equipment lifecycle software company that connects equipment owners, fleets, contractors, OEMs, suppliers, dealers, and distributors in the construction industry through a shared digital network. SmartEquip lowers equipment TCO by improving technician “wrench time,” increasing asset uptime, and reducing order errors. Its main offerings include:
- Procurement software for finding, sourcing, and ordering repair parts
- Catalog solutions, such as diagrams and enhanced catalogs for OEMs and suppliers
- e-Commerce solutions, including OEM support portals and white-label marketplaces for fleets, dealers, and equipment distributors.
The challenge
Selecting a Recurring Billing System
Migration from QuickBooks Invoicing
Before implementing Ordway, SmartEquip performed revenue accounting in spreadsheets and sent invoices from QuickBooks. As the company added more customers and revenue, it needed a more scalable approach to managing billing and revenue.
Billing System Evaluation Criteria
A cross-functional buying committee was assembled and evaluated over 15 different vendors before making a decision. The team ultimately selected Ordway for two reasons. First, Ordway was one of the few vendors capable of performing the complex contract management and revenue recognition required for SmartEquip’s business. The second reason was the people. SmartEquip was looking not only for a technology platform but also for a business partner that could help them manage the complex transition to the new billing system and continue to support them as the company grew.
“Ordway takes a lot of work off my revenue accounting team. We were tracking everything in Excel, which became unwieldy as we grew.”
Bianca Najjar
Controller, SmartEquip
Implementing the New Billing System
Ordway offers a high-touch, multi-phased implementation process led by a designated project manager. The first step was to interview the SmartEquip team to understand how the order-to-cash process had worked historically. Both teams then worked together to define the future state model with higher levels of automation. Once the approach was finalized, Ordway proceeded with system configuration, historical data migration, and upload of master data such as the chart of accounts. Before the final cutover, SmartEquip conducted a parallel run of both the new and old billing systems for a full period to ensure that all line-item charges on the invoice were calculated correctly and that all appropriate journal entries were generated on schedule.
“Ordway’s contract management is wonderful. It is a beautiful way to illustrate the different elements of a contract and how revenue is recognized for each.”
Bianca Najjar
Controller, SmartEquip
Contract Management for Finance
Complex Enterprise Agreements
One of the biggest headaches SmartEquip faced was with tracking customer contracts. SmartEquip’s top accounts include some of the largest manufacturing, construction, and material handling companies on the planet. It is common for these larger multi-national accounts to have multiple contracts, sometimes as many as 10-15 different agreements per account. Tracking the relationships between all the different parent and child account agreements is critical to ensuring timely payment. Each invoice must be tied to a specific contract to ensure it flows through the customer’s procurement and accounts payable processes without delay.
Migrating off Spreadsheets for Revenue Recognition
Historically, SmartEquip had tracked all customers, contracts, and invoices in a spreadsheet. The Excel-based process worked fine when the company was small, but as the customer base grew to hundreds of accounts, it was not scalable. With Ordway, SmartEquip has been able to organize all of its customer contracts in a single system. Each relevant data field, such as products, pricing, effective dates, and payment terms, can be easily viewed for each contract. There is no need to sift through dozens of pages of legal jargon trying to find the key contract terms. As new team members have joined, they have been able to quickly visualize the contract terms and associated revenue schedules by reviewing the data in Ordway.
Revenue Recognition
Deferred Revenue Schedules
Another challenge SmartEquip faced was reporting and accounting for revenue. SmartEquip generates revenue from a mix of one-time fees, recurring subscription contracts, and marketplace transactions. As a result, the company has different types of deferred revenue schedules with varying timelines by product line.
Journal Entries and a Revenue Subledger
Ordway’s revenue revenue software synthesizes contract data and generates the appropriate journal entries for each customer and product. The finance team can view recognized and deferred revenues by product and by customer with Ordway’s standardized reports. The accounting team can double-click on the schedules in reports to view the detailed journal entries. Data can also be exported as needed for analysis in a spreadsheet or a more advanced analytics tool.
Accounting for SaaS Contract Structures
One of the bigger challenges that SmartEquip faced with revenue accounting was a fairly diverse portfolio of historical agreements. In the early days of the company, the sales team experimented with many different pricing models and contract structures as it found product-market fit. Like many startups, the focus in early customer engagements was on closing the sale and not worrying about the downstream accounting impacts of the contract structure.
“Internally, everyone feels like Ordway is a very important part of who SmartEquip is right now.”
Bianca Najjar
Controller, SmartEquip
Avoiding System Consolidation
A few years after implementing Ordway, SmartEquip was acquired by a larger parent organization. As is common with most mergers and acquisitions, the finance team considered consolidating systems to reduce costs and simplify operations. However, moving off Ordway to another system would have required moving revenue recognition back to spreadsheets and hiring another accountant to manage the schedules. The accounting team was passionate about remaining on Ordway. They made the case to not include Ordway in the tech stack consolidation because of the productivity benefits being realized. Once the broader leadership team understood the ROI, they agreed to make an exception.
“After we were acquired, we were evaluating consolidating our financial systems. I remember imploring Procurement to maintain the budget dollars for Ordway as I’d just as soon quit rather than go back to tracking deferred revenue in a spreadsheet!”
Bianca Najjar
Controller, SmartEquip
Benefits
Automated Recurring Billing
Scaling without FTEs
One of the biggest benefits SmartEquip has gained from using Ordway is the ability to scale their financial operations without adding headcount. Since adopting Ordway, customer count has doubled along with associated increases in the volumes of contracts, invoices, payments, and journal entries. If SmartEquip had not adopted Ordway an additional revenue accountant would have been required to keep pace with the growth in volume.
Reduced Invoicing Times
SmartEquip does a final review of all its invoices before distributing them to customers to double check the accuracy of the charges and account balances. Inaccurate invoices can create unnecessary friction in customer relationships that can delay payments and stall upsell opportunities. Before implementing Ordway the invoice review process would take six hours or longer. With Ordway’s subscription billing software, the time has been reduced to less than one hour.
Accelerating Cash Flows
SmartEquip has also been able to reduce its days sales outstanding by implementing several of Ordway’s accounts receivable automation features. One of the most effective strategies has been automated email communications to customers about invoices and payments. Billing contacts are sent payment reminders in advance of the due dates. Accounts that are past due are sent frequent reminders to pay the outstanding balance, which has led to reduced DSOs.
