September 23, 2014
You work hard to get your members to participate in your events, maintain their memberships and buy your products. But the process doesn’t just end when you receive cash from their outstretched hands. Recognizing revenue in your AMS is an important part of your association's financial process, and you need a backend system that can handle all the ways in which you desire to receive money from your members. Does your AMS allow you to recognize revenue the way you need to, or are you stuck using some hokey work-around to get things done? Here are three common ways associations get into trouble when recognizing revenue in their AMS.
The first way associations get into trouble when recognizing revenue in their AMS is in processing deferred revenue for memberships. GAAP accounting rules specify that an association that charges up front for membership must defer that revenue in their books, typically month by month, until the entirety of that membership is actually served. This protects consumers in the event that the association that they’ve purchased year-long (or longer) membership to goes out of business a month after they sign up. The consumer ought to receive a refund proportional to the amount of membership not actually received, and deferring revenue correctly according to GAAP accounting practices enables this to happen and keeps associations in compliance every step of the way.
Deferred revenue is something some Association Management Software has difficulty processing. AMS platforms built without this in mind have to use hokey work-arounds like refunding money and utilizing debits and credits to get the job done. At best, administrators need to jerry-rig the system to do something it was never designed to do, and at worst the association is at risk of falling out of compliance with GAAP practices, risking accounting errors in their system. Avoid trouble for your association by doing things the right way.
"GAAP accounting rules require associations that charge up front for membership to defer that revenue in their books”
Another common scenario associations find themselves in when recognizing revenue occurs when putting on an event. Associations need to be able to bill their members for an event at the time their members register for the event, but need to hold off on realizing that revenue in their accounting books until a specific date before the event. Realizing revenue on a specific date before an event (or at the start of an event), rather than at the time of purchase is a function that modern associations can’t do without.
So what if you don’t have this functionality? You can piecemeal together a solution and make due with what you have. The risk, of course, is that by doing things the incorrect way you may muddle up the already tricky task of managing the accounting books, jeopardizing your associations financial solvency. The better solution is to use a platform that has this functionality built-in. Any viable AMS solution should be able to handle this common task. Protect yourself and your association by making sure your technology is up to snuff on this one.
Does your association management software make your life easier or more difficult? If you haven’t integrated the process you use to accept automatic payments with the fulfillment of orders and inventory your members are paying for, you already know the answer to that question. Without integration between payments and inventory, you would have to manually look at all transactions that have occured, create debits and credits by hand and manually create journal entries in your accounting software. Then you’d have to fulfill the orders that come in one by one. Sound inefficient? It is.
Integrating automatic payments with your orders and inventory process will keep you out of trouble on this one. This saves work for you over several steps - when someone purchases a product, the charge instantly goes to the merchant account, with no other work required to capture your members money. An invoice is then created automatically, with the invoice and payment sent to the financial batch, and upon those financial batches posting, subledger entries are generated that create debits and credits to your AR, revenue, cash account, etc. This all happens automatically, without you having to post a batch to process the collecting of the funds or do anything else. Save time and resources and make sure you get things right in the books by automating this important part of your association’s business.
I’ve outlined three scenarios here that your AMS definitely has to be able to handle, scenarios which might not be obvious at first glance. Be sure to ask any AMS vendor you speak to if their solution can handle these common issues. You’ll want to make sure the technology you use can handle the trickiest of accounting scenarios so your organization can go about the business of serving your membership. These issues are avoidable, so there's no reason to get your association into a messy financial situation.