Hi, We are currently in the process of changing our business model that directly affects our month-end billing process. Our previous model was billing in arrears on a per-transaction basis. We have now switched to a flat monthly fee billed upfront for services rendered. Our month-end bills are generated and dated on the last day of the month for both per-transactions and monthly services. The per-transaction customers' bills correspond to the month that the revenue is recognized and the monthly service customers' revenue is recognized a month ahead (ie, March service is billed & recognized on Feb 28). Do we need to start
Revenue Recognition For Services Billed Upfront
Answers
The quick answer is yes....deferred revenue. Should you not be doing TWO bills on Feb 29th? One for February (in arrears) and one for March (in advance)?
One important thing to point out is the capability of your existing system to accommodate the deferred nature of the revenue. So it wont be a question of when you billed it, but more for what period is the customer paying for. You are not "tethered" or dependent on a billing cycle.
Agreed, you can do either. If invoice is dated Feb 28 you need to defer. Easier to just date the invoice March 1. Either is fine.
Anon
1. Do your clients want/prefer one invoice or two?
2. How flexible is your accounting software? Does it have a rev rec module that can manage this for you automatically? How do you treat credits/refunds/adjustments?
3. If you bill per transaction (usage?) in arrears, don't you have to accrue it at month end if it is unbilled at that time? Do customers have specific cycle dates for transaction billing or do you have a standard cycle (e.g. 1st to last day of each month is billed last day, OR, 16th of month to 15th of next month, etc.).
In short what are your revenue
Something to think about; this form of invoicing is known as "pre-billing." Meaning the customer is billed before the service is offered. Should there be a dispute with a customer your position will be different had they already received the service.
If you are going to be considering commercial financing in the future, and are planning on using your accounts receivable as collateral - pre-billed invoices would be considered not eligible as far as a borrowing base. Lenders will not lend against pre-billed invoices.