SaaS
SaaS bookkeeping services
Subscription businesses collect cash on a different schedule from the one they earn it on. Books that ignore the gap mislead everyone.
Subscription businesses collect cash on a different schedule from the one they earn it on. Books that ignore the gap mislead everyone.
At a glance
In a SaaS business the moment cash arrives and the moment revenue is earned are deliberately different. An annual contract paid upfront is one cash event and twelve months of revenue. Books that conflate the two make a good month look extraordinary and the following eleven look like decline.
When a customer pays for a year in advance, you hold their money and owe them service. That obligation sits on the balance sheet as deferred revenue and releases into the P&L as you deliver.
It is also one of the most informative numbers you have: a growing deferred balance means contracted future revenue, and a shrinking one is an early warning that shows up well before recognised revenue falls.
Revenue is recognised as the performance obligation is satisfied. For most SaaS that is ratably across the subscription term. Where it gets interesting is contracts bundling implementation, support or usage, which may be separate obligations recognised on different patterns. Our ASC 606 page covers it in detail.
Recognising annual prepayments on receipt inflates current revenue and hides the liability. It is found in diligence, and the damage is not the restated number — it is that every other figure you provided now gets re-examined.
An ARR figure from the billing system that does not reconcile to the accounting is the most common thing we are asked to fix before a raise.
Deferred revenue tracked properly, recognition to a documented policy, metrics that reconcile to the accounts, and a monthly close with a named accountant.