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Billing and Recognition of License fees

Violet Haddow's Profile

Hi there,
I would love to hear from anyone who has experience handling Licensing fees (Annual or months) I just started working for a fairly new startup that do a number of these. The customer signs up for Licensing fee for a period of time (3, 6 or 9 months, or annual) I've not done this before, so what I know is what I have read so far and I would appreciate
all the help I can get.
1. Do I Invoice the customer for the full amount so they can pay?
2. Defer the an earned revenue?
3. Recognize the earned amount monthly? In nutshell: What is the best way to handle long period licensing fee revenue?

I'm new at this so details is much appreciated. Thank you!

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

There are multiple ways of handling (which you pointed out).

Also, there are services that will automatically charge credit cards on a subscription basis (Stripe is just one example, a service I have not used).

You only need to defer revenue if you invoice for services not yet performed. So for simplicity sake, they take your service for 12 months starting Jan 1, you need to defer (unearned revenue) 11 months of services and reverse unearned to sales each month.

If you bill (or do a credit card subscription) monthly, you don't need to defer any revenue, it is earned in that month.

Should billing occur on any other day of the month, technically you should accrue that portion of the 30 days that lies outside the current month, for next month.

Violet Haddow
Title: Staff Accountant
Company: United States
(Staff Accountant, United States) |

Thank you Wayne for the feedback! The Company is a SaaS company - we invoice for these services up front and the clients pay months ahead for these subscriptions.

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