Understanding Unbilled Revenue An Essential Guide for Businesses

 The success of any business enterprise in today’s competitive commercial environment will undoubtedly be underpinned by the utilization by that business of a sophisticated financial and business model. In such circumstances, it is important that all businesses, seeking to achieve sustained growth and financial stability, should fully understand the accounting principle of unbilled revenue and then be able to manage, effectively, that unbilled revenue.

In this comprehensive guide, we define what unbilled revenue is, distinguish unbilled revenue from its counterpart accounting concept of deferred revenue, explain why it is so important that businesses should understand the concept of unbilled revenue, and then how they should monitor and manage unbilled revenue. We go on to explain how unbilled revenue needs to be accounted for by businesses and highlight how, by the integration of an advanced subscription billing software — such as that provided by Billsby — businesses can strengthen their financial foundations thereby empowering their business to navigate the complexities of modern revenue management with confidence and precision.

What is Unbilled Revenue?

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In business, the term “unbilled revenue” (sometimes known as “accrued revenue” or “unbilled accounts receivable”) is commonly used to refer to business income earned by a company for goods or services that have been delivered but that have not yet been invoiced. Even though a business has not yet issued corresponding invoices to its customers, this type of revenue is recognized in its financial statements.

Unbilled revenue is an important indicator to be used to reflect accurately a company’s financial position. Regardless of the terminology used, the underlying principle is the same; a business has provided goods and/or services and is entitled to be paid for those goods and/or services and a business’s entitlement to such payment should be reflected as unbilled revenue in its accounts.

Deferred Revenue Distinguished

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Deferred revenue, often referred to as “unearned revenue”, is distinct from unbilled revenue but shares certain similarities in revenue recognition. Deferred revenue arises when a company receives payment from customers for goods or services that have not yet been provided. Unlike unbilled revenue, which represents completed transactions awaiting invoicing, deferred revenue represents obligations to deliver goods or services in the future.

As such, deferred revenue is recorded as a liability on a company’s balance sheet and will remain a liability until the company fulfils its corresponding obligations.

Importance of Monitoring Unbilled Revenue

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Businesses must monitor their unbilled revenue for several reasons:

1. Cash Flow Forecasting: Unbilled revenue provides insights into future cash inflows, aiding in cash flow forecasting and financial planning.

2. Revenue Recognition: Tracking unbilled revenue ensures accurate revenue recognition, aligning with the matching principle and accounting standards.

3. Financial Stability: Understanding the magnitude of unbilled revenue helps assess a company’s financial stability and performance, enabling informed decision-making.

4. Billing Efficiency: Monitoring unbilled revenue allows businesses to identify inefficiencies in their billing processes and implement corrective measures to streamline operations.

Accounting for Unbilled Revenue

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Accounting for unbilled revenue involves recording the earned revenue in the appropriate accounting period, even though the corresponding invoices have not been issued. The following steps outline the accounting treatment for unbilled revenue:

1. Recognition: When goods or services are delivered to customers, but invoices have not yet been issued, unbilled revenue is recognized through an adjusting journal entry. This entry debits unbilled revenue and credits the corresponding revenue account, reflecting the revenue earned.

2. Periodic Review: Businesses should periodically review their unbilled revenue accounts to ensure accuracy and completeness. Any discrepancies or adjustments should be promptly addressed to maintain the integrity of financial reporting.

3. Reporting: Unbilled revenue should be disclosed in the company’s financial statements, typically under the accounts receivable or revenue recognition sections. Clear disclosure ensures transparency and accountability in financial reporting.

Integration of Subscription Billing Software

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By integrating an effective subscription billing software into their accounting systems businesses can proactively manage unbilled revenue and optimizing billing processes. Here’s how businesses can benefit from integrating Billsby into their operations:

1. Automated Invoicing: Billsby automates the invoicing process, ensuring timely and accurate generation of invoices for unbilled revenue. This eliminates manual errors and enhances billing efficiency.

2. Real-Time Monitoring: Billsby provides real-time monitoring of unbilled revenue, allowing businesses to track revenue accruals and reconcile accounts with ease. Real-time insights enable proactive decision-making and risk management.

3. Flexible Subscription Management: Billsby offers flexible subscription management features, allowing businesses to customize billing plans, manage subscription renewals, and adapt to changing customer needs seamlessly.

4. Integration Capabilities: Billsby seamlessly integrates with existing accounting systems, enabling seamless data exchange and synchronization. This integration ensures data accuracy and consistency across platforms, eliminating duplication and errors.

Conclusion

In conclusion, unbilled revenue plays a pivotal role in the financial management of businesses employing a subscription billing model. Understanding the concept of unbilled revenue, its accounting treatment, and the importance of monitoring it are essential for maintaining financial stability and achieving long-term success. By integrating robust subscription billing software like Billsby into their operations, businesses can streamline billing processes, optimize revenue recognition, and drive growth in a competitive marketplace.

Source: Unbilled Revenue

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