Key Challenges for Project-Based ETO Manufacturers
By: Johnny Nugent
Many Engineer-to-Order (ETO) manufacturers operate their business on a project basis managing and delivering activities outside the normal product costing models. There are typically a handful of projects in process at any one time, yet they can be sizable and often last a year or longer. Unable to carry the financing on these projects, these manufacturers employ progress billing to maintain cash flow.This periodic invoicing cycle takes place throughout the project and is driven by the achievement of pre-defined contractual conditions. This fundamental business model creates havoc for traditional accounting systems linked to an enterprise resource planning (ERP) system. As a direct result of progress billing, manufacturers are challenged by revenue recognition. This activity is crucial since the revenue has to be tracked in accordance with Generally Accepted Accounting Principles (GAAP).
Key challenges for project-based ETO manufacturers
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Progress billings for long term projects
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Revenue recognition
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Actual cost collection by job
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Comparison of actual costs to budget
Visibility provides seamless revenue recognition for project-based ETO manufacturers. Using VISIBILITY Project Accounting, ETO manufacturers are able to address the issues of progress billing and revenue recognition while integrating Sales Orders, Work Orders, Purchasing, Labor Distribution, Accounts Payable and Accounts Receivable into a seamless workflow. ETO manufacturers can review the actual cost and revenue each month and then recognize revenue with the touch of a button.
VISIBILITY posts to the proper accounts for progress billings, revenue recognition and cost. VISIBILITY's Project Management modules enable customers to track profit margins throughout the life cycle of the project and to precisely account for the estimate to complete the project.
