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How to recognize non-refundable fees for cancelled SaaS contract before Go Live?

M O's Profile

We received a customer as part of an acquisition. As is typical for a SaaS Company, the customer was billed $36K upfront for a one year subscription for a couple of our products. There were no separate implementation/integration fees. There was some back and forth with the client because they wanted some functionality promised by the acquired company which we do not provide. When we acquired the customer, we created a new contract with our products so we really didn't need to provide the requested functionality but tried to accommodate the client. In the end, the client decided they wouldn't use our products. The fees we received are sitting in deferred revenue and we have no obligation to return them. How should they be treated as this point? Revenue? Other Income??

Answers

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

Here are my thoughts:

1. You may NOT be under obligation to return the non-refundable fee, but I believe that it is GOOD BUSINESS practice/ethics to return them anyways. YOU not being able to fulfill the functionality of the previous contract is in NO way the client's fault. Remember, when you acquired the company, you also took over their contract obligations. Do the right thing. Look at it as creating good karma for your company.

2. And to answer your question.....my recommendation is Other Income.

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