Unbilled revenue refers to income that has been earned by a company for providing goods or services but has not yet been invoiced to the customer. This type of revenue is common in industries with subscription models, like software as a service (SaaS), where services are provided continuously over time, and billing cycles may not align perfectly with the period during which the revenue is earned.
In a SaaS business, unbilled revenue often occurs when a service has been delivered or a subscription period has begun, but the customer has not yet been billed. For example, if a customer subscribes to a SaaS product on an annual plan, the company earns revenue each month as the service is provided. However, if the billing is set to occur only at the end of the year, the revenue earned up to that point but not yet invoiced is considered unbilled revenue.
Unbilled revenue is recorded on the company’s balance sheet as an asset under accounts receivable. This is because it represents money that the company is entitled to receive but has not yet requested from the customer. Properly managing unbilled revenue is crucial for accurate financial reporting and maintaining a clear picture of a company’s financial health.
Unbilled revenue can impact cash flow management, as it represents income that has been earned but not yet received. For SaaS companies, it is essential to monitor and manage this revenue to ensure that the business remains financially stable, particularly if there is a significant gap between when services are provided and when payment is collected.
Tracking unbilled revenue is also important for compliance with accounting standards, which often require revenue to be recognized when it is earned, not necessarily when it is billed or received. By keeping a close eye on unbilled revenue, companies can ensure that their financial statements accurately reflect the business’s performance.
