Revenue recognition is where SaaS accounting gets complicated. The fundamental principle is simple — recognise revenue when you deliver the service, not when you receive the cash. But applying this to annual contracts, bundled implementations, usage-based pricing, and mid-term upgrades creates complexity that catches founders off guard during due diligence.
A customer pays £60,000 upfront for a twelve-month subscription. Many SaaS companies book this as £60,000 of revenue in the month received. The correct treatment is £5,000 per month over twelve months, with £55,000 sitting as deferred revenue on the balance sheet. Getting this wrong distorts every metric downstream — MRR, ARR, growth rate, and gross margin.
During due diligence, the first thing an investor's accountant does is reconcile your reported revenue to your contracts and bank statements. If the numbers do not tie, the conversation shifts from growth potential to financial credibility. Revenue restatements have killed more SaaS deals than bad metrics.
For the complete guide covering IFRS 15, the five-step framework, deferred revenue management, and how to handle bundled contracts and usage-based pricing:
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