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Very few companies are going to turn down revenue, regardless of the shape it takes, so if customers are unwilling to pre-pay for a year, it's easy to figure ou
by rgrieselhuber 14y ago
Very few companies are going to turn down revenue, regardless of the shape it takes, so if customers are unwilling to pre-pay for a year, it's easy to figure out a way to make it work.
That being said, the startups we've spoken with who have switched to annual pricing are able to get paid in advance 60-70% of the time. This helps a lot.
Some companies prefer this as well as it can reduce their own AP and record-keeping burden.
- redler 14y agoAnnual pricing can be a great thing -- simplification and money up front: what's not to like? But anyone being paid long in advance of when a service will be delivered should keep in mind that, from an accounting perspective, some portion of that pool of advance payments may be considered a liability, and can complicate revenue recognition. As soon as you receive a payment, you now owe the customer a year of service instead of, perhaps, them owing you the cost of a month of service.
- rgrieselhuber 14y agoRev rec definitely gets more complicated, this is a good point. Everything is a tradeoff.