Prepaids should be imported from our accounting system and be tracked as they are consumed

Description

Prepaid expenses in CPM systems affect the balance sheet and cash flow statement, making them important to track in a planning environment. For this requirement, the CPM tool must allow the inclusion of existing pre-paid and modeling of future prepaids. As each time period goes by, the prepaid is consumed and will ultimately disappear unless renewed.

Example Use Case

Scenario: A mid-market enterprise operates with a multitude of prepaid expenses like advance rent, insurance, service contracts, and the like. They need to have these prepaids in their CPM software to aid effective budgeting and forecasting.

Solution: With the CPM software, the prepaids get imported from the accounting system regularly. As these prepaids get consumed over time, the software tracks their consumption and associated future payment obligations. This assists in forecasting cash flow and assets.

Considerations

Over the period that the prepaid goods or services are consumed or as the benefit period passes, a portion of the prepaid amount is expensed. This process is known as amortization for intangible prepaids or simply as expense recognition for others. The method of amortization should match the benefit period. As not all prepaids receive the same treatment, they should be configurable in the CPM tool.

Some products have a way to track prepaids, but it is a custom implementation. With prepaids growing in importance with the wide adoption and big-ticket prices of SaaS subscriptions, the need to properly amortize and forecast these is more important than ever. If the vendor does not offer a pre-built module, see if they can offer some sort of custom solution that is easy to manage.

Questions to Ask a Vendor

• Integration: How can we automatically import prepaids, including their amortization schedules?
• Forecasted to Owned: Is it easy to convert a planned prepaid to owned once we make the actual purchase?
• Amortization Methods: Can we easily add new methods in the event we purchase something that does not have a ready-made method?