Invoicing vs Billings: Understanding SaaS Revenue Metrics

Billings are a strong indicator of future revenue, but they aren’t a guarantee. Contracts can be canceled, customers might dispute charges, or in some unfortunate cases, they may never pay at all. These situations create a gap between what you’ve billed and what you can actually recognize as revenue. That’s why it’s so important to have systems that provide a clear, real-time view of your entire financial picture. With the right integrations, you can track the entire lifecycle from billing to revenue recognition and spot potential issues before they impact your bottom line.

• Read real-life success stories from our diverse range of clients who have experienced tangible benefits from our services.
• This allows you to spot trends, understand your sales cycle better, and get a clear view of your company’s future potential.
• A ratio of 1 signifies a healthy balance, where incoming orders match fulfilled deliveries.
• As far as revenue recognition goes, ASC 606 provides an overarching framework to recognize and report revenue that’s applicable across industries.
• Chargebee highlights the importance of deferred revenue in SaaS accounting.

SaaS Bookings vs Billings vs Revenue: Everything You Should Know

Payment collection happens either at the time of booking if they’re paying you for months in advance, or at the time of revenue recognition if they’re paying you per month. One of the biggest hurdles in revenue recognition is dealing with disconnected systems. When your CRM, billing platform, and accounting software don’t talk to each other, you’re left with manual data entry, spreadsheets, and a high risk of human error. This can lead to major headaches, from inaccurate revenue reports to a stressful, time-consuming financial close each month.

What Is Deferred Revenue?

Internally, management and employees rely on revenue data to guide strategic decisions and allocate resources effectively. Revenue performance can influence everything from product development to marketing strategies. When it comes to assessing the importance of billing, it’s crucial to consider how it impacts various stakeholders.

How Billings Relate to Past and Present Contracts

A robust platform can simplify these processes, giving you more time to focus on growth. If you have investors, they’ll pay close attention to how you recognize revenue. If your revenue is growing, it generally means your business is doing well and selling more. However, just like bookings and billings, consider revenue alongside other metrics to get the full picture of your company’s health. Revenue is the money your business actually earns https://www.bookstime.com/ during a specific period. It’s the income you get from selling your products or services to customers.

The $12,000 is considered deferred revenue, and the company recognizes $1,000 each month as services are rendered. If you run a subscription or contract-based business, you’ve likely heard of ASC 606. Think of it as the official rulebook for how and when you can recognize revenue. Automation helps you follow these rules consistently for every single transaction. Instead of manually calculating revenue schedules, the system applies the correct standards automatically, which drastically reduces the risk of human error and potential penalties.

To see how well your business is doing financially, look at revenue, bookings, and cash flow as well. Analyzing book-to-bill ratio trends over multiple periods provides a more comprehensive understanding of performance. A single low ratio might not be concerning if previous periods were strong. Tabs offers tools to automate complex invoicing for better control over your billing.

The Book-to-Bill Ratio

To calculate your monthly bookings, simplylook at the total value SaaS bookings vs billings vs revenue of the contracts that you’ve booked in a specificmonth. Think of invoices as single billing moments, while billings lump all those moments together into a total for reporting stuff. The new billings software has really smoothed out the invoicing process, making it quicker and more on point. Backlog, meanwhile, is the sum of all the customer contracts still waiting in the queue to be completed or turned into recognized revenue. Backlogs tell you about items that have been sold but can’t be billed just yet.

• Although your recognized revenue is closely related to your MRR, it is not the same – we’ll dive in the difference between MRR and Recognized Revenue in a separate article.
• Understanding the difference between bookings, billings, and revenue is crucial for accurate financial reporting, and that’s where GAAP (Generally Accepted Accounting Principles) comes in.
• Essentially, it gives you a view of your organization from various angles, which allows you to plan well for the future and to adjust your activities based on present trends in the market.
• Terms like bookings, billings, and revenue are tossed around so frequently that it’s easy to get lost in the shuffle.
• Billings are the total amount invoiced for delivered goods or services during a specific period.
• For example, if you bill a client for a three-month project at the very beginning, you can only recognize one-third of that amount as revenue after the first month of work is complete.

Modern financial platforms are designed to handle the complexities of SaaS models, from subscription management to revenue recognition. https://dev.healingworksfoundation.org/what-is-an-early-payment-discount-how-is-it-2/ By investing in the right tools, you can automate tedious tasks, ensure your data is always accurate, and free up your team to focus on strategy instead of spreadsheets. This shift allows you to close your books faster, pass audits with confidence, and get a clear, up-to-the-minute view of your company’s financial health. It’s a forward-looking metric that shows a customer’s commitment to pay you for services over a specific period. Next, billings are the actual amount of money you invoice your customers for during a certain period. Finally, revenue is the money you recognize after you’ve delivered the promised service.

• While a large booking is exciting, it doesn’t help you pay the bills until you actually invoice—and collect—the cash.
• That’s the reason businesses should consider keeping it simple, consistent and transparent to reduce these complexities and reporting difficulties.
• Investors pay close attention to bookings as a measure of your business’s future earnings potential and overall growth trajectory.
• However, the multi-year contract structure in the B2B SaaS business model can conceal internal problems (and the gradual accumulation of issues from customers, employees and more).
• Operators and institutional investors, such as venture capital (VC) and growth equity (GE) firms, must understand the differences between bookings, billings, and revenue in the SaaS industry.

Invoicing refers to the process of creating and sending invoices for the goods or services provided, while billings involve the actual amounts customers are charged and when payments are due. Togai simplifies the pricing and billing processes to provide a streamlined solution to the complex challenges of SaaS billing. This simplification helps you manage entitlements and track bookings and billings accurately.