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SAAS Revenue Recognition help!

Do i need to wait until a SAAS licence period begins to recognise the revenue?

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I work in a SAAS business , we are mainly a re seller of software , the terms that the customer has with us and the software supplier is that they have 30 days to cancel the licence from the date they purchase regardless of the start of the licence period. For example if a customer purchases a licence on 1st August with a licence start date of 1st September they have 30 days to cancel from 1st August and not 1st September. There is no right to cancel after this date. Currently i recognise the revenue immediately and post a provision for refunds within the 30 day period based on the historical refund trends. We also purchase the licences from our supplier at the point we buy the licences regardless of when they start so that we match revenue with cost without accruing for it . If a customer renews a licence early for example in August for an October renewal they have 30 days to cancel from August and so i again recognise the revenue in August and provide for any possibly refunds within the 30 days. I am being told i must defer the revenue to the licence start dates but i am not too sure that is correct . 

There is a possibility that a new sale made in July could be renewed the following June so a month early and have two revenue entries within the same Financial Year for the same customer / licence - which i understand more and would at year end defer any that have been 'double counted' in one FY, but month to month given there is no right to cancel after 30 days i dont know that i agree with having to defer the revenue. This even throws into question whether it matters if there are two revenue entries in one year for the same customer if both sets of income are earned and there is no possibility of a refund. 

If anyone has any knoweldge in this area i would be grateful 

thank you 

Replies (6)

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By Anonymous.
02nd Sep 2020 20:27

As long as your Finance Director and accountants are happy with your approach, and you apply it consistently, then I don't see any issue.

Thanks (1)
By Paul Crowley
02nd Sep 2020 20:47

Revenue recogntion is a choice of accounting policy detail, but needs to be disclosed on co accounts if not FRS 105 Micro company.

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By paul.benny
03rd Sep 2020 07:31

You're perhaps over-complicating by thinking of this as a software sale. It sounds like what you are doing is little different from selling hardware - buying something, reselling it, with little continuing obligation on your part. This is in contrast to the software provider who has to provide service and support over the license period.

As long as you are matching costs and revenue, I don't see any need to defer revenue from customers who renew early.

I would also question the cancellation provision. How many first time customers actually cancel? How many renewing customers pay their renewal and then cancel?

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Replying to paul.benny:
03rd Sep 2020 07:54

Thanks hadn't thought of it like this , appreciate your help

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Replying to paul.benny:
By johnt27
03rd Sep 2020 11:59

I suppose the key question here is whether or not you are deferring/accruing the licence costs you incur. If you do then your income should be deferred/accrued to match.

If not, then as Paul says you are effectively onselling a product so should match cost and income as if you were selling goods.

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Cloud Computing
By ngaccounts
03rd Sep 2020 12:32

If a license starts on say Jan 1st but is invoiced/paid in Dec, i still wouldn't recognise the revenue until 1st Jan irrespective of whether the cancellation date had passed.

Cant see how the performance aspect of rev rec would be satisfied before then & as you point out you could be recognising revenue for two separate years in the same period.

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