In the last episode, we covered everything you’d want to know about collections. This episode we covered the ins and outs of Bookings, Billings, and Revenue. BBR, not Pabst Blue Ribbon PBR, but BBR, Bookings, Billings, and Revenue.
In this episode of Pain in the GAAP, we covered:
Bookings: Total amount of the contract. For example, a three-year contract at $12K per year, the bookings would be $36K. The nuance is if service starts on 10/1, and the contract was signed on 9/19, you booked $36K in September. Bookings can be an indicator of future company performance
Billings: More than sending out an invoice. Total bookings, billings, and revenue for a contract should all be the same number. However, there are timing differences for each. Let’s use the 3-year, $36K contract. Let’s say it’s billed annually.
- If we close the deal in September, we would book $36K in September.
- If the service starts in October, we would begin the revenue recognition of $1K per month starting in October
- If the first billing date is November, we would bill $12K in November of this year, and have two more $12K invoices one and two years out.
We got into a discussion of Days Sales Outstanding (DSO). The way you calculate DSO is
DSO = Average accounts receivable / total credit sales * days in period
Revenue: Don’t confuse cash for revenue. Revenue recognition is an important concept we’ll cover in future episodes along with concepts of ARR and MRR.
Internal controls are important to handle the nuances and friction between bookings, billings, and revenue. Check out this list of 38 controls we recommend a business implement within the first 24 months.