What is Deferred Revenue
The Deferred Revenue process is a two-step method.
- Requests for payment are sent to the customer based on percentages of the job. These invoices can be generated as work is completed or based on contractual dates.
- Delivery invoices are created internally, which capture all the inventory transactions as they occur. Typically generated weekly or monthly, delivery invoices reflect the actual goods delivered and services performed in the period they occurred.
Using the RFP method, customers are paying deposits which are held by the company and applied against delivery invoices as they occur. The customer does not see line item detail on their invoice. Instead, they would refer to the proposal to get line item details about their purchase.
As delivery invoices are created, iPoint applies the customer’s deposit against the actual goods and services sold, reducing the deposit. If the customer’s deposit has been fully utilized, the delivery invoice simply remains outstanding until the next RFP has been paid and payments applied.
At the end of the job, the value of your RFP invoices will typically match the value of your Delivery Invoices typically will match dollar amounts because you are tracking sold or quoted labor. But you can also use the RFP / Delivery Invoice process to track actual labor by “delivering” more or less labor than was quoted on the Sales Order. This is an advanced process that we are more than happy to help you with if you are interested.
Why should I defer revenue?
We are all in the business of making money! Accuracy of revenue recognition is an extremely important part of ensuring you and your company are on track.
Enter Deferred Revenue . . .
Our Best Practice Recommendation for your Accounting Methodology in iPoint is what we call the RFP Liability method. This is utilized on Sales Orders, which are typically larger, longer term jobs as opposed to Service calls.
Pros:
- Accuracy in recognizing Revenue – you’re realizing it when items are actually installed and delivered, not when the payment is made
- Defer tax payments – pay in real time – same as revenue, why be responsible for tax before installation?
- Solid tracking of items in you cogs and income accounts – everything is mapped to correct cogs and income accounts providing detail when products are installed
- Ability to provide your client with simple percentage “invoice” – RFP (request for payment)
- No limitation on payments/credit memos – you can use credit memos to pay RFPs seamlessly
- All of this information is sync’d to QB so that business Owners can focus on two reports: P&L and the Balance Sheet
Cons:
- This is only available for those companies that are not utilizing cash based accounting