SaaS Revenue Recognition

How to recognise

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We are invoicing a client £300k for access to a software we've developed. They have unlimited liscences and access to the software for the next 5 years, however, they're paying in two installments, £150k now and £150k in a years time. 

What is the best way to recognise the revenue? 

1. Recognise £150k now and £150k in a year

2. Recognise £60k each year for the next 5 years

3. Recognise all upfront. 

Please advise

Thanks

Replies (6)

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By David Ex
24th Apr 2024 17:20

Joshua Pearce wrote:

We are invoicing a client £300k for access to a software we've developed.

Please advise

If you are dealing with those sort of sums, you either have an accountant or very urgently need one.

https://www.accountingweb.co.uk/any-answers/how-to-use-any-answers

“If you intend to plan a course of action based on what you read in here, you should instead be taking professional advice.”

“They are not here to provide free accounting advice.”

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paddle steamer
By DJKL
24th Apr 2024 17:31

Before anything examine contract re what your obligations are vis a vis the software and support for same over the next five years, this might well impact your perception re revenue recognition.

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Replying to DJKL:
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By FactChecker
24th Apr 2024 20:33

And not just what liabilities you may have (for fixes, upgrades, support etc) over the term ... but also what rights, under the contract (which I fervently hope was drawn up professionally for those sums), does the purchaser have to cancel/return (from a simple demand for partial reimbursement through to refusing to pay 'part 2')?

OP: once your perception is adjusted, please seek professional advice before tears become de riguer.

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By paul.benny
24th Apr 2024 17:40

With every respect, the question isn't "what's the best way" but "what's the required way" to recognise revenue.

Assuming you're reporting under UK accounting standards, you should take a look at FRS102 s23. The examples in s23A don't directly deal with SaaS, but Example 15 in para 23A.19 is probably the most relevant. As DJKL hints at, you probably have some obligations around bug fixes, tech support that are included within the licence fee.

FRS102 can be downloaded without charge from the FRC website. If all this is too technical for you, you need to check with the company accountants and seek their help.

Thanks (3)
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By Leywood
24th Apr 2024 19:51

Joshua Pearce wrote:

Please advise

Only when you are signed up as a client

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By Paul Crowley
24th Apr 2024 22:58

Who else will be using the service?

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