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.

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