Deferred Revenue

Money a customer has paid for a service you have not yet delivered, like an annual subscription paid upfront. It sits as a liability until you earn it month by month.

Why it matters

Deferred revenue is great for cash flow, you hold the money before doing the work, but it is not yet earned revenue. Understanding the difference keeps your accounts and your investors' expectations honest.

For example

A customer pays 1.2 lakh upfront for a year; the company holds it as deferred revenue and recognizes 10,000 as earned each month.

Worth your time

Guide to SaaS Revenue Recognition and Deferred Revenue in SaaS The SaaS CFO · article This is written by a working SaaS CFO (Ben Murray, CPA), so it explains deferred revenue and accrual recognition in the exact terms your future accountant and investors will use. It walks through a $12,000 annual contract becoming $1,000 of recognized revenue per month, the clearest way to see why cash in the bank is not the same as revenue earned. Treat it as a starting point, then decide with your accountant when you actually need to switch your books over. Open thesaascfo.com →

Related terms

Billings Accrual Accounting MRR

Go deeper

See how founders actually handle this on Money, pricing and metrics, part of the Starting Up hub.

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