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Get clear on billings vs revenue. Learn the key differences, why they matter, and how tracking both helps you make smarter business decisions.
Billings are the promise. Revenue is the proof. While high billings show a healthy sales pipeline, your recognized revenue tells the true story of your company's performance. The billings vs revenue debate isn't just for accountants; it's a crucial look into your operational health. A gap between the two can signal issues with service delivery or customer onboarding. By understanding this dynamic, you move from simply looking at your bank account to making strategic decisions. This clarity helps you manage resources effectively and plan for sustainable growth based on what you've actually earned.
If you’ve ever looked at your financial reports and felt a disconnect between the cash in your bank account and the income on your P&L, you’ve likely run into the classic revenue vs. billings puzzle. It’s easy to use these terms interchangeably in conversation, but in the world of accounting, they tell two very different—and equally important—stories about your business's health.
Understanding this distinction isn't just for accountants. It’s fundamental to grasping your company's actual performance, managing cash flow effectively, and making strategic decisions with confidence. One metric shows you the money you've asked for, while the other shows you the money you've truly earned. Let's break down what each one means and why getting them right is so critical for your financial clarity.
Think of revenue as the income you have officially earned by delivering a product or service. It’s a direct measure of your company's performance during a specific period. For businesses with recurring contracts, like SaaS companies, revenue is recognized over time as you fulfill your obligation to the customer. If a client pays you $12,000 for an annual subscription, you don't recognize all $12,000 in revenue on day one. Instead, you earn it incrementally, typically $1,000 each month. This method is the foundation of accrual accounting and is central to following revenue recognition standards like ASC 606.
Billings are simply the total amount of money you've invoiced your customers. It’s the "ask." Using the same $12,000 annual subscription example, you would likely send an invoice—or bill—for the full $12,000 at the start of the contract. So, your billings for that month would be $12,000, even though your recognized revenue is only $1,000. Billings are a fantastic indicator of your business's momentum and potential cash flow. They represent customer commitments and the money you expect to collect, giving you a forward-looking view of your finances.
The main difference between revenue and billings comes down to timing. Billings are a single point-in-time event: the moment you send an invoice. Revenue is recognized over a period as you deliver the promised value. The gap between these two is a crucial concept called deferred revenue—money you've collected but haven't earned yet. This is why clear tracking is so important; it ensures your financial statements are accurate and compliant. Having seamless integrations with your accounting software and CRM is key to keeping these figures straight without manual headaches.
Now that we've sorted out the difference between billings and revenue, let's take one step back to where the customer relationship truly begins: the booking. Before you can send an invoice (a billing) or earn your money (revenue), you first need a customer to commit to buying from you. This initial commitment is what we call a booking, and it’s the first official signal of future business. It represents the moment a customer signs on the dotted line, agreeing to pay for your products or services over a set period. Understanding bookings is essential because it’s the leading indicator that fuels your entire financial cycle, offering a glimpse into the health and momentum of your sales engine.
A booking is the total value of a contract signed with a customer. It’s a formal agreement that locks in future business, but it’s important to remember that no money has necessarily changed hands yet, and no service has been delivered. Think of it as a promise of future revenue. For example, if a new client signs a two-year contract for your software at $10,000 per year, you have a booking of $20,000. This figure is a powerful measure of your sales team's success in a given period, showing exactly how much new business they've secured. It’s a forward-looking metric that sits at the very top of your financial funnel.
Bookings are one of the most critical metrics for gauging a company's growth trajectory, which is why investors pay such close attention to them. While revenue tells you about your past performance, bookings tell you about your future potential. A steady stream of high-value bookings indicates strong market demand and a healthy sales pipeline. It’s a clear sign that your company is on the right track to grow in the coming months and years. Consistently strong bookings give you, your team, and your investors the confidence that future revenue streams are secure, allowing for more strategic planning around hiring, product development, and expansion.
While bookings, billings, and revenue form the core of your financial story, a few other key metrics provide deeper context and clarity. Looking at these numbers together helps you move from simply tracking your finances to truly understanding them. They allow you to analyze the quality of your revenue, the value of your customer contracts, and the overall momentum of your business. When you have a solid grasp of these metrics, you can make smarter, data-driven decisions that pave the way for sustainable growth. Let's explore some of the most important ones you should be watching.
Annual Recurring Revenue (ARR) is the predictable, repeating income a company expects to receive from its customers each year. This metric is the lifeblood of subscription-based businesses because it represents stable and predictable cash flow. Unlike bookings, which can include one-time fees, ARR focuses exclusively on the recurring value of your subscriptions. For instance, if a customer signs a contract with a $5,000 one-time setup fee and a $12,000 annual subscription, the booking is $17,000, but the ARR is only $12,000. Tracking ARR accurately is fundamental for forecasting and valuation, and it’s a core component of proper revenue recognition practices.
Total Contract Value (TCV) and Annual Contract Value (ACV) help you understand the worth of your customer agreements over different time horizons. TCV is the total value of a contract, including all recurring fees and one-time charges. So, for a three-year deal at $10,000 per year plus a $2,000 setup fee, the TCV would be $32,000. ACV, on the other hand, normalizes that value into a one-year figure. In the same example, the ACV would be $10,000. Both metrics are useful: TCV shows the full commitment you’ve secured from a customer, while ACV provides a standardized way to measure contract value year over year, making it easier to track trends in your sales performance.
The book-to-bill ratio is a fantastic tool for measuring your company's demand and momentum in the short term. It’s calculated by dividing your total bookings by your total billings for a specific period. A ratio greater than 1 is a great sign—it means you are securing new orders faster than you are invoicing for them, indicating a strong and growing demand for your product. Conversely, a ratio less than 1 could suggest that demand is slowing down. This simple metric provides a quick snapshot of your business's health and can be an early indicator of future growth or potential challenges, highlighting the need for clear, real-time financial insights.
It’s easy to see money hit your bank account and think your business is thriving. But the real story of your financial health lies in the timing. The moment you bill a customer and the moment you actually earn that money are often two different points in time, and this gap can create a distorted picture of your company's performance. Understanding this distinction is crucial—it’s the difference between having a clear view of your operations and making strategic decisions based on incomplete data. Getting the timing right isn't just about following accounting rules; it's about truly understanding your company's growth trajectory and stability. When you separate what you've invoiced from what you've earned, you can see your business with incredible clarity. This perspective helps you manage cash flow effectively, forecast future performance accurately, and build a sustainable business model that stands up to scrutiny from investors and auditors alike. It’s a fundamental concept that, once mastered, changes how you measure success and plan for the future. Without this clarity, you might overestimate your monthly income, leading to poor budgeting, or underestimate your long-term obligations to customers, putting your reputation at risk.
Think of revenue as the income you’ve truly earned by delivering a product or service. It’s not about when you get paid, but when you fulfill your obligation to the customer. For example, if a client pays you $12,000 upfront for a one-year service contract, you don’t recognize all $12,000 in revenue on day one. Instead, you recognize $1,000 each month as you provide the service. This method, known as accrual accounting, gives you a much more accurate picture of your company's performance over time. It’s a core principle of major accounting standards, including the ASC 606 guidelines, which ensure your financial statements are consistent and comparable.
While the core idea is to recognize revenue as you earn it, the specific method you use depends on how you deliver value to your customer. For most subscription-based services, the straight-line method is the standard approach—you recognize revenue evenly over the contract period, just like in our $1,000-per-month example. However, for other business models, revenue might be recognized based on usage, project milestones, or the completion of specific tasks. The key is to choose a method that accurately reflects the transfer of your promised goods or services. Getting this right is essential for staying compliant with revenue recognition rules and ensuring your financial reports tell the true story of your company's performance.
Billings are much simpler: it’s the total amount of money you’ve invoiced your customers. This is the point where you officially ask them to pay. Using our $12,000 annual contract example, you would likely bill for the full amount at the start of the service period. That single action creates a $12,000 billing. Unlike revenue, which is recognized incrementally over the year, the billing can happen all at once. Your billing schedule is a strategic choice based on your business model and cash flow needs. You might bill annually to get cash upfront, or you might bill monthly to match your customer’s budget and reduce friction.
Here’s where it all comes together. Billings directly impact your cash flow and accounts receivable, showing how much money is coming into your business. Revenue, on the other hand, is what appears on your income statement (or P&L) and reflects your actual operational performance for a period. The amount you've billed but haven't yet earned is recorded as "deferred revenue" on your balance sheet—a liability that represents your promise to deliver future services. Properly tracking these separate streams is vital for accurate financial reporting, and it’s where having the right data integrations can save you from major headaches and compliance issues.
Your income statement, or Profit & Loss (P&L), is designed to show how your business performed over a specific period, like a month or a quarter. This is where revenue takes center stage. Revenue is the metric that reflects the value you’ve actually delivered to customers during that time. Billings, on the other hand, don’t appear here. While a huge spike in billings is exciting, it doesn't mean your company was profitable that month. Only the earned portion of those billings—the recognized revenue—counts toward your performance. This distinction is what keeps your P&L an honest reflection of your operational health and is a cornerstone of accurate financial reporting.
The balance sheet provides a snapshot of your company's financial position at a single point in time, detailing what you own (assets) and what you owe (liabilities). When you bill a customer, you create an asset called Accounts Receivable—the money you're entitled to collect. Once they pay, that becomes cash. At the same time, you also create a liability called Deferred Revenue. This isn't a bad thing; it's simply a record of your obligation to provide a service in the future. As you deliver that service over time, you'll draw down the deferred revenue liability and recognize it as earned revenue on your income statement, perfectly connecting the two reports.
Think of deferred revenue as the waiting room between your billings and your recognized revenue. It’s the money you’ve invoiced or collected for services you haven’t delivered yet. For any business with subscriptions, annual contracts, or upfront project fees, understanding this concept is non-negotiable. It’s the key to accurately matching the revenue you earn with the work you perform, which is the whole point of accrual accounting and standards like ASC 606. Getting this right ensures your financial statements tell the true story of your company’s performance over time, not just on the day you send an invoice.
When you hear "liability," you might think of debt or something negative. But in this case, it’s actually a good sign. Deferred revenue is classified as a liability on your balance sheet because it represents an obligation to your customer. You’ve been paid, and now you owe them a product or service. It’s a promise you have to keep. Essentially, deferred revenue is money you have already billed but haven't earned yet because you still need to provide the service. Once you deliver on your promise, that liability turns into earned revenue on your income statement. So, a growing deferred revenue balance often means you have a healthy pipeline of future work.
Here’s how it works in practice. Imagine you bill a client $12,000 for an annual software subscription. You have the cash (or an account receivable), but you haven't earned it all at once. That $12,000 is first recorded as deferred revenue. Each month, as you provide one month of service, you can recognize one-twelfth of that total—$1,000—as earned revenue. This process of moving funds from the deferred revenue liability account to the revenue account is what connects your billings to your actual performance. It ensures your revenue reflects the value you’ve delivered in a specific period, not just the cash you’ve collected.
Deferred revenue is a critical metric for understanding the financial health of your business. It sits on your balance sheet as a current liability, showing investors, lenders, and your internal team how much revenue is already contracted but not yet earned. This provides a valuable glimpse into your company's future earnings. A steady or increasing deferred revenue balance suggests strong sales and predictable income streams, which is a fantastic indicator of stability and growth. It’s the most direct link between the sales contracts you’re signing today and the GAAP revenue you’ll report in the coming months.
On the flip side of deferred revenue, you have accrued revenue, which is sometimes called unbilled revenue. This is the income you've earned by delivering a service or product, but you haven't sent the invoice for it yet. Think about a long-term consulting project where you bill the client only after completing a major milestone. You've been doing the work and earning the revenue all along, but the billing event hasn't happened. According to the principles of accrual accounting, you need to recognize that income in the period you earned it, not when you eventually send the bill. This ensures your financial reports accurately reflect your performance for that period, even if the cash hasn't been requested yet.
It’s a scenario that can leave any business owner scratching their head: your bank account looks healthy and invoices are flying out the door, but your revenue reports are telling a much different, less exciting story. This gap between billings and revenue isn't just a quirky accounting detail; it’s a critical signal about the health of your business. When you bill for more than the revenue you’ve recognized, it means you’ve collected cash for services you haven’t fully delivered yet.
While it’s great to have cash on hand, this discrepancy can mask underlying issues that could impact your long-term growth. It might point to problems in your service delivery, a disconnect between your teams, or a misunderstanding of your company's true financial performance. Ignoring this gap is like driving while only looking at your gas gauge—you see you have fuel, but you have no idea if your engine is about to overheat. This situation is especially common in subscription-based or high-volume businesses where upfront payments are the norm. Getting to the bottom of why your billings are outpacing your revenue is the first step toward building a more resilient and predictable business model, one where your financial statements accurately reflect your operational reality.
When your recognized revenue lags far behind your billings, it’s often a symptom of an operational bottleneck. Think of it this way: your sales team is successfully closing deals and sending invoices, but something is slowing down the actual delivery of your product or service. This discrepancy can signal operational inefficiencies that need to be addressed before they become bigger problems.
Perhaps your onboarding process is taking longer than expected, or maybe product implementation is hitting unforeseen snags. These delays mean you can't recognize the revenue even though you've billed for it. Tracking these metrics separately helps you pinpoint exactly where in the pipeline things are getting stuck. By identifying these red flags early, you can smooth out your delivery process, which not only improves your financial reporting but also leads to happier customers.
High billings can create a false sense of security. Seeing a lot of cash come in feels great, but if it’s all tied to future obligations, it’s not truly yours to spend freely. When you bill a customer upfront for a year of service, that money is recorded as deferred revenue—a liability on your balance sheet. You’ve been paid, but you still owe the service, and you’ll incur costs to deliver it over the next 12 months.
This can lead to serious cash flow issues if you’re not careful. If you spend that upfront cash on immediate expenses without budgeting for the future costs of service delivery, you could find yourself in a tight spot down the road. True financial health isn't just about the cash you have today; it's about ensuring your recognized revenue can sustainably cover your operational costs over time. You can find more insights on maintaining financial stability on our blog.
Often, the gap between billings and revenue stems from a simple disconnect: your sales and finance teams are looking at different numbers. Sales teams are laser-focused on bookings and getting contracts signed, while finance is concerned with recognized revenue and compliance. When these teams don't communicate effectively or work from a single source of truth, it’s easy for misalignments to occur.
The solution is to bring everyone onto the same page. By tracking bookings, billings, and revenue together, you create a comprehensive view of your company's performance that everyone can understand. This is where automation becomes a game-changer. An automated system provides real-time visibility, breaking down silos and ensuring all departments are working with the same data. When your teams are aligned, you can collaboratively identify the root causes of low revenue and work together to fix them. You can schedule a demo to see how a unified data platform can align your teams.
When your sales team closes a huge annual deal, they see a big win. But when your finance team looks at the books, they see only one-twelfth of that deal as recognized revenue for the month. This disconnect isn't anyone's fault; it's a symptom of teams working from different playbooks. Sales is measured on bookings, while finance is measured on earned revenue. The key is to create a shared language and a single source of truth. When you integrate your CRM and accounting software, both teams can see the full picture—from the initial contract to how revenue is recognized over time. This shared visibility helps align goals and fosters collaboration, turning the conversation from "Why are our numbers different?" to "How can we improve our delivery to recognize revenue faster?"
Your billing schedule is more than just an operational detail; it's a strategic lever you can pull. Billing annually upfront is fantastic for immediate cash flow, but it creates the widest possible gap between your billings and your recognized revenue. This requires disciplined management of your deferred revenue. On the other hand, billing monthly or quarterly aligns your billings much more closely with your revenue recognition schedule, giving you a smoother, more predictable financial picture. There's no single right answer—the best approach depends on your business model, customer preferences, and cash flow needs. The important thing is to make a conscious choice and understand how it impacts your financial reporting and operational planning.
Even with a solid billing strategy, getting cash in the door is what keeps the lights on. One of the simplest ways to speed up your cash conversion cycle is to incentivize early payments. Consider offering a small discount, like 1% or 2%, if a customer pays their invoice within 10 days instead of the standard 30. This tactic, often referred to as "2/10, net 30," can be surprisingly effective. It gives your customers a clear reason to prioritize your invoice, which helps reduce your days sales outstanding (DSO) and improves your cash flow predictability. It’s a small gesture that can make a big difference in keeping your finances healthy and your operations running smoothly.
It’s easy to think of revenue and billings as two sides of the same coin, but they tell very different stories about your business. Focusing only on the money hitting your bank account (billings) without understanding what you’ve actually earned (revenue) can lead to a distorted view of your financial health. To truly understand your company's performance and make sound decisions, you need to pay close attention to both. Tracking them together gives you a powerful, three-dimensional view of your operations, from sales momentum to service delivery.
Think of it this way: billings represent your potential, while revenue reflects your reality. Billings show the total amount you've invoiced customers, signaling strong customer commitment and future cash flow. It’s a great indicator of sales success. Revenue, however, is the portion of that billing you’ve earned by delivering your product or service, which is the true measure of your current financial performance. The gap between them is often filled by deferred revenue—money you've billed for but haven't earned yet. Understanding all three components gives you a much more accurate and honest picture of your company’s financial standing. You can find more insights on financial metrics on our blog.
When you track both revenue and billings, you equip yourself with the data to make better strategic moves. High billings might give you the confidence to invest in new talent or expand your marketing efforts, as it points to future growth. But your recognized revenue is what grounds your operational budget and tells you what you can sustainably afford right now. Having a complete view of these metrics helps you balance ambition with reality. By pulling data from all your systems, you can see how sales performance translates into earned income, which is essential for accurate forecasting and resource planning. The right integrations are key to creating this unified financial picture.
The relationship between your billings and revenue can be a powerful diagnostic tool. For instance, if your billings are consistently high but your recognized revenue lags behind, it could signal a bottleneck in your operations. Are there delays in product delivery or customer onboarding that are preventing you from earning that cash? On the flip side, if billings start to dip while revenue remains stable, it might be an early warning of a weakening sales pipeline. For businesses with annual or multi-year contracts, these numbers will often differ, making it even more critical to monitor the trends. If you want to see how automation can help you spot these issues, you can schedule a demo with our team.
The relationship between your billings and revenue is more than just a financial metric; it’s an early warning system for customer churn. When you bill a customer for a service but face delays in delivery, your recognized revenue will naturally lag. For your customer, this delay translates into a poor experience. They've committed to you—and often paid you—but aren't getting the value they expected in a timely manner. This friction is a primary driver of churn. By monitoring this gap, you can proactively identify operational bottlenecks, like slow onboarding or implementation issues, and fix them before they lead to a lost customer. This turns a simple financial report into a powerful tool for improving customer satisfaction and retention.
It’s easy to get revenue and billings mixed up, and you wouldn't be the first. These terms are often used interchangeably in conversation, but in your financial statements, they tell very different stories. Understanding the distinction is crucial for accurately gauging your company's health and making sound business decisions. Let's clear up a few common myths that can trip up even seasoned entrepreneurs.
Seeing a big payment land in your bank account feels great, but it doesn't automatically mean you've earned that money. Cash from a customer is part of your billings, and it reflects your cash flow potential. Revenue, on the other hand, reflects your actual performance. If a client pays you upfront for a year of service, you can't recognize all that cash as revenue in the first month. Instead, it sits on your balance sheet as deferred revenue—a liability—and you earn it incrementally as you deliver the service each month. This distinction is a core principle of ASC 606 compliance and is key to understanding your company's true financial standing.
Sending an invoice is simply a request for payment. It kicks off the billing process, but it isn't revenue. Revenue is only recognized when you fulfill your performance obligations—that is, when you deliver the goods or services you promised. For example, if you bill a client for a three-month project at the very beginning, you can only recognize one-third of that amount as revenue after the first month of work is complete. The invoice represents the total amount you expect to be paid, but the revenue is tied directly to the value you’ve delivered over time. Confusing the two can give you a dangerously inflated sense of your company's performance.
In a perfect world, every invoice you send would turn into collected cash and, eventually, recognized revenue. But reality is often more complicated. Billings are a strong indicator of future revenue, but they aren't a guarantee. Contracts can be canceled, customers might dispute charges, or in some unfortunate cases, they may never pay at all. These situations create a gap between what you've billed and what you can actually recognize as revenue. That’s why it’s so important to have systems that provide a clear, real-time view of your entire financial picture. With the right integrations, you can track the entire lifecycle from billing to revenue recognition and spot potential issues before they impact your bottom line.
Getting a handle on your financials feels like it should be straightforward, but it’s surprisingly easy to fall into common traps that can distort your company's financial picture. These aren't just minor accounting mistakes; they can lead to poor strategic decisions, cash flow problems, and even compliance issues down the road. When you're juggling sales, operations, and growth, it's critical to be aware of the pitfalls that can trip you up. Recognizing these common errors is the first step toward building a more accurate, reliable, and insightful financial reporting process that truly reflects the health of your business.
We’ve all been there. When you’re starting out, a spreadsheet feels like the perfect tool for tracking everything. But as your business grows, especially with high transaction volumes, that trusty spreadsheet quickly becomes your biggest liability. Manual data entry is a breeding ground for human error—a single typo or a broken formula can throw off your entire financial statement without you even realizing it. Spreadsheets also make it incredibly difficult to maintain a single source of truth. Different versions get saved and shared, leading to confusion and inconsistent data across departments, which is a nightmare for accurate reporting and compliance.
A signed contract is a reason to celebrate, but it’s just the beginning of the financial story. The timeline between that initial booking, the billing, and when you can finally recognize the revenue is a critical process to monitor. When there’s a long delay between when you bill a customer and when you earn the revenue, it often points to an operational problem. Perhaps your customer onboarding is slow, or product implementation is hitting snags. This isn't just an accounting issue; it’s a sign that your delivery process might be inefficient, which can impact customer satisfaction and delay your ability to report on performance accurately.
It’s tempting to think of complex accounting standards like ASC 606 as something only large corporations need to worry about, but that’s a risky assumption. These rules exist to ensure that all businesses report their income consistently and accurately. The core principle is simple: you should only recognize revenue when you have fulfilled your obligation to the customer, not just when you send an invoice or receive cash. Ignoring this can lead to misrepresenting your financial health, which can cause major problems during an audit or when seeking investment. Manually trying to stay compliant is incredibly complex, which is why automated systems built to handle these rules are so essential for growing businesses.
Manually tracking billings, revenue, and deferred revenue schedules can feel like a full-time job, especially as your business grows. Juggling spreadsheets, cross-referencing invoices, and hoping everything adds up at the end of the month is not only stressful but also leaves a lot of room for error. This is where automation changes the game. It takes the manual work and guesswork out of the equation, giving you a clear and accurate picture of your finances without the late nights.
Automated revenue recognition isn't just about saving time. It's about ensuring accuracy, staying compliant with complex accounting standards, and gaining the insights you need to make smarter decisions. By connecting all your financial data sources, from your payment processor to your CRM, an automated system creates a single source of truth. This means you can trust the numbers you're seeing and focus on strategy instead of data entry. With the right integrations, you can build a seamless financial workflow that supports your company's growth.
If you run a subscription or contract-based business, you’ve likely heard of ASC 606. Think of it as the official rulebook for how and when you can recognize revenue. Getting it wrong can lead to serious headaches during an audit. Automation helps you follow these rules consistently for every single transaction. Instead of manually calculating revenue schedules, the system applies the correct standards automatically, which drastically reduces the risk of human error and potential penalties. This ensures your financial statements are always accurate and audit-ready, giving you—and your investors—peace of mind. For more details on financial best practices, you can find helpful insights in the HubiFi blog.
Waiting until the end of the month to understand your financial health is like driving while only looking in the rearview mirror. Automation gives you access to financial dashboards with real-time information on your most important metrics. You can instantly see your cash flow, track changes in deferred revenue, and even monitor customer churn as it happens. This immediate visibility is critical for making proactive decisions. You can spot positive trends to double down on or address potential issues before they become major problems. When you have a live pulse on your financials, you’re better equipped to guide your business effectively.
An automated system connects all the dots between billing, invoicing, and revenue recognition. Instead of your team spending hours manually entering data and reconciling accounts, the software handles it for you. When a customer is billed, the system automatically creates the correct revenue recognition schedule based on your contract terms. This not only ensures you’re following accounting rules but also frees up your team from tedious administrative tasks. By streamlining the entire process, you reduce errors, close your books faster, and give your finance team more time to focus on strategic analysis that actually moves the business forward. You can schedule a demo to see how this process works firsthand.
Which metric is more important for my business: revenue or billings? Neither one is more important—they just tell you different things, and you need both for a complete picture. Think of billings as a measure of your sales momentum; it shows customer commitment and gives you a sense of your future cash flow. Revenue, on the other hand, is the true measure of your company's performance right now. It tells you how much you've actually earned, which is essential for understanding profitability and making sustainable budget decisions.
Is having a lot of deferred revenue a good or a bad thing? It's almost always a good thing. While it's technically a "liability" on your balance sheet, it's a healthy one. A high deferred revenue balance means you have a strong pipeline of customers who have prepaid for services you'll deliver in the future. It points to predictable income and business stability, which is exactly what you, and any potential investors, want to see.
Why can't I just look at my cash flow to understand my company's performance? Cash flow is critical for knowing if you can pay your bills, but it doesn't tell you if your business is actually profitable. You could receive a large upfront payment for an annual contract, making your cash flow look fantastic. However, you still have to pay for the costs of delivering that service for the next 12 months. Recognized revenue matches the income you've earned to a specific period, giving you a much more accurate view of your operational health.
My business is still small. Do I really need to track revenue and billings separately? Yes, absolutely. Getting this right from the start builds a strong financial foundation and saves you from massive headaches later on. As you grow, this distinction becomes critical for everything from accurate forecasting to securing a loan or attracting investors. Separating these metrics early establishes good habits and ensures your financial reports are clear and trustworthy as you scale.
What's the biggest risk of mixing up revenue and billings? The biggest risk is making poor strategic decisions based on a distorted view of your financial health. If you treat all your billings as immediate income, you might overspend, thinking you're more profitable than you are. This can lead to serious cash flow problems down the line when you have to cover the costs of delivering services you've already been paid for. It also creates compliance issues and can make your business look unstable during an audit.
Former Root, EVP of Finance/Data at multiple FinTech startups
Jason Kyle Berwanger: An accomplished two-time entrepreneur, polyglot in finance, data & tech with 15 years of expertise. Builder, practitioner, leader—pioneering multiple ERP implementations and data solutions. Catalyst behind a 6% gross margin improvement with a sub-90-day IPO at Root insurance, powered by his vision & platform. Having held virtually every role from accountant to finance systems to finance exec, he brings a rare and noteworthy perspective in rethinking the finance tooling landscape.
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