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Unbilled Receivables is an asset account on the balance sheet representing amounts recognized as revenue for which invoices still need to be sent. This can occur when you invoice in arrears or have any delay in billing, relative to the delivery of products and services to customers.
Such unbilled receivables are captured as Unbilled Charges in Chargebee Billing.
Contact RevRec Support to enable this feature on your RevRec site.
RevRec supports direct integration with the Unbilled Charges feature in Chargebee Billing to capture them as Unbilled Receivables in RevRec.
RevRec will treat Unbilled Charge as an invoice, creating sales order and recognizing revenue according to the product revenue recognition rules and booking the Unbilled Receivable asset account.
When the invoice is billed later, RevRec is aware that the unbilled charge has already been recognized and will not create a duplicate sales order. Instead it establishes a deferred revenue balance when the invoice amount is higher than the cumulative unbilled receivable balance.
Soft-split is a process that is used to separate invoices that include both the unbilled charges from the previous billing cycle, as well as the amount due for the next billing cycle.
Let's look at an example: ABC Inc. has an unbilled charge of $500. The customer renews their subscription for another period and the total invoice amount is $700. RevRec applies the soft split process, splitting the invoice into two: $500 to reduce the existing unbilled receivable balance and $200 allocated to the renewed contract, creating a deferred revenue account.
Unbilled charges will not affect the generation of sales orders with contract term feature. This is because sales orders in RevRec are created based on the contract term data from Chargebee.
Consider the following use cases to understand the impact of unbilled charges.
Credit notes cannot be used to offset unbilled charges, as they are only applicable to invoices that have already been issued. Therefore, an invoice must be generated first before a credit note can be applied.
When an unbilled charge is invoiced on renewal, the invoice will include the amount of the initial unbilled charge along with the amount for the renewed contract. The soft split process will reduce the unbilled receivable balance from the initial contract and allocate the remaining invoice amount to the renewed contract.
RevRec uses the applicable exchange rate at the unbilled charge or contract date for translation purposes. Furthermore, when an invoice is generated at a later date, a foreign exchange gain or loss may be recognized due to the difference in exchange rates between the unbilled charge date and the invoice date.
At the end of accounting period, RevRec assesses whether a contract has a net unbilled receivable or a deferred revenue balance and books corresponding entries.
The Journal report has been modified to add a new account type, titled Unbilled Receivable, in order to capture this change.
The Unbilled Receivable Roll Forward report tracks the activities and balances of unbilled receivables over each accounting period. You can access this report by clicking Reports > Sales & Invoice. The report contains the following metrics:
| Metric | Description |
|---|---|
| Accounting Period | The accounting period. |
| Beginning Unbilled | Opening balance of Unbilled Charge |
| New Billing | The new invoice amount in the period. |
| New Unbilled | The unbilled charge in the period. |
| Ending Unbilled | Closing balance of Unbilled Charge |
A ratable contract is created for four months on 1st Jan with an amount of $16,000. Invoice is sent at the end of March with a total value of $16,000.
| Customer | Metrics | Jan | Feb | Mar | Apr |
|---|---|---|---|---|---|
| CUS1 | Beginning Deferred Revenue | $0 | $0 | $0 | $4,000 |
| CUS1 | Beginning Unbilled Receivable | $0 | $4,000 | $8,000 | $0 |
| CUS1 | New Billing | $0 | $0 | $16,000 | $0 |
| CUS1 | Revenue | $4,000 | $4,000 | $4,000 | $4,000 |
| CUS1 | Ending Deferred Revenue | $0 | $0 | $4,000 | $0 |
| CUS1 | Ending Unbilled Receivable | $4,000 | $8,000 | $0 | $0 |
| Month | Account | Dr | Cr | Explanation |
|---|---|---|---|---|
| Jan | Deferred Revenue | $4,000 | At the start of each month, an unbilled receivable account is established. This account tracks the amount of revenue earned in the current month but not yet billed to the customer. | |
| Revenue | $-4,000 | |||
| Jan | Unbilled Asset | $4,000 | ||
| Deferred Revenue | $-4,000 | |||
| In the following month, the previous month's unbilled receivable balance of $4000 is reversed and RevRec recalculates the unbilled receivables balance at the end of the month i.e. $8000 | ||||
| Feb | Deferred Revenue | $4,000 | ||
| Unbilled Asset (Reversal) | $-4,000 | |||
| Feb | Deferred Revenue | $4,000 | ||
| Revenue | $-4,000 | |||
| Feb | Unbilled Asset | $8,000 | ||
| Deferred Revenue | $-8,000 | |||
| March | Deferred Revenue | $8,000 | In March, $16,000 was billed to the customer, which included $8,000 of unbilled charges from January and February, and $4,000 for March and $4,000 for April services. The $8,000 unbilled receivable balance is reversed and a deferred revenue is established with remaining $4000 | |
| Unbilled Asset (Reversal) | $-8,000 | |||
| March | AR/Cash | $16,000 | ||
| Deferred Revenue | $-16,000 | |||
| March | Deferred Revenue | $4,000 | ||
| Revenue | $-4,000 | |||
| Apr | Deferred Revenue | $4,000 | ||
| Revenue | $-4,000 | |||
