Advance billing far into future
Hi CG team,
in this thread here http://support.cheddargetter.com/discussions/problems/137-billing-f... you mention that billing a long term in advance is asking for trouble. I now have a client that plays with those evil ideas, and I'd be interested what kind of trouble specifically he would run into if we went that route. Actually, we're only talking one year membership, but I still feel somewhat uncomfy about it. Could you elaborate on the legal implications, etc?
Thanks,
Daniel
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Support Staff 1 Posted by Marc Guyer on 13 Jul, 2010 04:39 PM
Hi Daniel -- This is a common question. Often the motivation for billing in advance for a lengthy period of time is to improve the company's cash position early. This is typically a flawed plan because in reality the company has not "earned" the money until the services are rendered. This can open you up to liability should the customer choose to cancel or if the company should dissolve. Further, in accrual-basis accounting (rather than cash-basis), you are required to defer the income until it is earned. In this case, the "unearned" revenue sits on the liability side of the balance sheet. This can be quite complicated.
Marc Guyer closed this discussion on 13 Jul, 2010 04:39 PM.