Really, Revenue Recognition, That’s All You Got

While I have heard the objection of revenue recognition to fixed price and service level agreements before, there has been a recent spate of them and my default value reply is to say, “Really, that’s all you got!”

The more detailed answer is to ask, “Are you a publically traded company? If not, there is really no problem.”

This is usually met with silence followed by some mumbling about a possible future creditor using WIP or receivables to secure a loan. The response is then to say, “What about using the signed agreement from your customers? Isn’t that better than time either billed and not collected or time not billed at all? Besides, I recommend you get paid upfront.”

Again, more silence followed by, “Yeah, but if they prepay me, I can’t recognize the income.” My reply, “So, you are complaining that you will have too much cash is the bank? Maybe you won’t need a loan in the first place.”

That usually ends the argument, as if there was one in the first place.

While some objections to pricing on purpose and service level agreements are better than others, this one takes the cake. It is just a non-starter.


  1. Matthew Tol says:


    When Ron was out here last year, we had a chat as part of a forum with a load of accountants and lawyers.

    We’d been off timesheets and pricing up front for nearly two years and one of the attendees asked me how I went with the bank given the fact that I had no WIP. I replied to him that I had a file full of signed contracts with customers covering the future period which was effectively a guarantee of revenues.

    A WIP report is no guarantee of revenue as firstly you have to bill it, then you have to collect it (or some of it!) and you may well piss the customer off in the process.

    Some people still don’t get it and don’t appreciate that a contract to deliver service over a period for an agreed price is pretty standard through the business world (small sample: Telco’s, Health Insurance, general insurance etc). By moving more in to this realm when we engage our customers, we’re actually making it far easier for them to do business with us and removing the issues around pricing and billing. It’s common amongst just about every other business apart from “professional services”. Why are we so slow to move (as professions) when the way forward would appear to be so obvious?

  2. Matthew, thanks for the enhancement to the post. This objection is just inane.

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