Guides
Part of Gross versus net: what a revenue entry has to decide
What good revenue recording metrics actually measure, in three groups
Revenue recording metrics fall into three groups: work delivered but not invoiced, the lag from delivery to invoice, and the tie-outs that keep the ledger honest.
A sales report tells you what was invoiced. It cannot tell you what was earned and never billed, or what was billed twice. Those failures live in the process behind the number, and they only surface when you measure the process itself.
The measures below come out of an ordinary transaction export. Every figure is invented to show the arithmetic.
What to take away
- Value work completed against invoices raised at each period end. This is the only measure that finds revenue nobody billed.
- Run the receivables roll forward first. Opening balance plus invoices less receipts and credit notes should equal closing receivables exactly.
- Report the tail of every lag, not the mean. Six slow jobs out of forty are the whole story.
- Lock a period once it is reported. Entries dated into a closed period should be zero, and locking is what makes that achievable.
- Bring unallocated cash to nil before you trust the aging report.
Coverage: what was earned but never billed
Delivered but not invoiced
Take whatever record you keep of work completed, match it against invoices raised, and value the gap. A job sheet, a delivery log or a project schedule will do.
If no such record exists outside the ledger, that is the finding. Start a dated list of finished jobs, however rough, and you can run the measure next month.
Sales entries carrying a delivery date
Count the share of sales records where a service date is entered and differs from the invoice date. The federal guidance on what records a business keeps expects the sales record to establish when the work happened.
A low share does not prove the periods are wrong. It proves you cannot tell, which for this purpose is the same thing.
Deferred income agreed to a release schedule
Money held for work not yet done should equal the total remaining on your release schedules. Compare the two monthly. A difference means a release was posted without touching the schedule, or money was taken without a schedule written.
How an advance is treated for tax is a separate question, handled differently under different methods. The federal guide to accounting periods and methods is where to start.
Timing: how long each step takes
Delivery to invoice
Compute the lag per sale, then ignore the mean. Say a month has 40 jobs: 34 invoiced within three days, six between thirty and fifty. The mean lands near eight days and reads as fine.
Those six are the story. Something was in dispute, the paperwork was incomplete, or nobody owned the billing. Report the count over ten days, not the average.
Invoice to credit note
How long after an invoice does a credit note against it appear? A short lag means invoices are corrected as a matter of routine. A lag of months usually means disputes are settled quietly and late, which belongs in a conversation about pricing or quality, not bookkeeping.
Entries dated into a closed period
Count them and value them. Zero is achievable, because the mechanism is locking a period once you have reported on it.
Tie-out: does the ledger still hold together
Receivables at the end of a period should equal the opening balance, plus what you invoiced, less what you received, less credit notes and write-offs. Anything else means something reached one of those accounts by a route you do not know about.
Tie-out
| Line | Amount |
|---|---|
| Receivables at the start of the month | 84,000 |
| Invoiced during the month | 120,000 |
| Received from customers | 112,000 |
| Credit notes issued | 6,000 |
| Receivables the roll forward predicts | 86,000 |
| Receivables the ledger actually shows | 91,000 |
| To be explained | 5,000 |
That 5,000 has a short list of causes. Check them in order: a journal posted straight to receivables, a payment posted to income instead of allocated, a write-off taken without a document, or an invoice entered outside the normal sales route.
None of the four would show up in a sales report. The second is the most common of the sales figures that quietly lie.
The same roll forward works for deferred income, and it is where an unreleased subscription balance surfaces. The mechanics underneath both are set out in the revenue recording guide.
Two ratios worth watching
Credit notes as a share of invoiced value
Compute it monthly against your own history. There is no meaningful outside benchmark, and anyone offering one is describing a different business.
The split is what makes it useful. Credit notes for pricing errors say something about invoicing. Credit notes for returns or rework say something about delivery. In one account they are one uninterpretable number. With a reason code they point at a specific team.
Unallocated cash
Value of receipts sitting against a customer without being applied to invoices. It should be near nil at every month end, because unallocated cash makes the aging report wrong in both directions: it chases people who have paid and reassures you about invoices that are open. The accounts receivable guide covers what that does to collections.
Measures that mislead here
- Revenue per employee as a check on recording quality.It moves for a dozen reasons and says nothing about whether the figure was assembled correctly.
- Comparing your credit note rate with another business.Different mix, different terms, different definition of delivered. Compare with your own last twelve months.
- Sales growth as evidence that recording is fine.A duplication running six months produces beautiful growth.
- Counting invoices rather than valuing them.Ten small corrections and one large one are not the same problem, and a count treats them as eleven.
Turning the readings into work
Take the readings monthly, in about twenty minutes, and write down the number rather than a verdict.
Monthly twenty-minute routine
- Do receivables roll forward first
- List sales invoiced over ten days late
- Agree deferred income to schedules
- Bring unallocated cash to nil
- Count entries dated into closed period
That routine sits alongside a month end pass on the cost side, and together they are most of what a close is. What the numbers mean once they are trustworthy is the subject of the profit and loss statement guide.
Common questions
What if we have no record of work delivered outside the ledger?
Start one, however rough. A dated list of jobs finished is enough to make the first measure possible, and it is the measure most likely to find money.
How far back should the tie-out go?
Start with the current month. If it does not tie, go back a month at a time until it does. The first period that ties tells you where the problem began.
Should any of these be targets for a person?
Billing lag can be, because someone can act on it. Credit note rate should not be, because the fastest way to reduce it is to stop issuing credit notes that are owed.
How do these differ from the sales reports we already run?
Sales reports answer what happened. These answer whether the sales report can be believed. Running the second set once a month is what lets you stop double checking the first.
