Running a SaaS business demands that entrepreneurs interpret information on bookings vs billings and revenue accurately. Such parameters are critical when creating financial reports; still, they are frequently confused. Bookings accounting enables you to evaluate future financial inflows based on subscriptions. Billing refers to payment documents sent to clients and the projected earnings shortly thereafter. Revenue is connected with the finances the firm has received. Below, we’ll explore the primary features of bookings vs billings and tactics to deal with these non-GAAP metrics.
What Are SaaS Bookings?
A SaaS firm’s total bookings display the value of committed customer contracts in a selected interval. They are an integral part of sales funnel analysis and financial inflow prediction. Such a forecast parameter represents the start of an operation or subscription. During the interval, the user decides whether to purchase products or services, renew a subscription, or take other actions. They also agree to meet financial obligations on time throughout the contract interval.
If a business uses a monthly billing cycle, when determining the monthly billing sum, it is necessary to consider the annual contract value (ACV) instead of the total contract value (TCV), as with a yearly cycle.
Suppose an annual agreement worth $35,000 is a booking and cannot be designated as instant profit. Booked offerings deliver perspectives on commercial performance and market conjuncture.
What Are SaaS Billings?
When exploring bookings vs billings, billings represent the actual amount invoiced to customers during a given period. They display invoices sent out based on the agreement’s payment plan. Billings are currently the primary parameter to assess immediate liquidity and determine the money needed for day-to-day operations.
Suppose users with an annual payment of $40,000 pay the entire sum at the beginning of the period. These finances appear on the bill right away, despite the monthly recognition of recurring revenue. When signing a quarterly agreement for $40,000, the invoice sum is $10,000 in every quarter.
If a client signs a three-year agreement for $90,000, the entire sum is logged as a booking. However, billings solely capture the segment invoiced during that year, or $30,000.
What links bookings vs billings? Bookings capture the entire contract value at the moment of signing and secure future obligations. Billings, on the other hand, occur when the company invoices portions of that contract, for example, 25% each quarter in a yearly agreement.
Clients don’t always pay immediately. In corporate operations, invoicing may be deferred according to adoption milestones. At the same time, milestones can exceed bookings by accelerating payments, e.g., through prepayment discounts.
High bookings confirm strong sales, but to sustain growth, they must ultimately be converted into profit through invoicing.
What Is SaaS Revenue?
It’s also crucial to explore revenue more thoroughly to fully grasp the financial metrics of a SaaS firm. It is the revenue generated from delivering products or services, as defined by accounting standards. Likewise, it’s the sum shown on a business’s profit and loss statement and is employed to evaluate its financial situation.
SaaS firm owners must explore how bookings vs billings transform into revenue. Bookings capture the entire sum of agreements closed with clients, irrespective of when money is obtained. These documents serve as an indicator of the firm’s future development.
Accrual accounting requires that profit be recognized only when a firm provides a service and receives funds. Bookings are not profitable until you invoice the client and obtain finances. It is real finances, not potential earnings.
Accountants should also know the features of bookings vs billings vs backlog. The “backlog” section displays information about goods and services that have been sold but cannot yet be billed due to their absence.
Let’s look at the situation: a client orders and pays for a 12-month subscription for $24,000 in the first days of the year. The entire sum is recorded in the first quarter and billed immediately. Revenue is recognized monthly at $2,000 per month ($24,000 / 12) as the client gains ongoing access.
In the first quarter, from January to March, accountants record $6,000. The remaining $18,000 remains as deferred revenue until fully repaid within the year. If usage exceeds the baseline, e.g., additional services, extra profit is recorded as it occurs.
Key Differences Between Bookings, Billings, and Revenue
Knowing the distinctions between bookings vs billings vs revenue is crucial, since they capture the situation at various points in the client lifecycle. Confusion may lead to a misunderstanding of your company’s prosperity. We’ve summarized the primary features in a table.
| Metric | Timing | Cash Flow Impact | Accounting Treatment (GAAP/IFRS) |
| Bookings | Recorded when the agreement is signed | None, it doesn’t mean the bill is paid. | Not recognized in financial statements, it is used for internal analysis. |
| Billings | Recorded when you send the invoice | Directly impacts accounts receivable and the final cash balance. | Creates a liability if the service has not yet been delivered. |
| Revenue | Recorded as the service is rendered over time. | An indirect parameter that reflects the “burn-down” of your obligation. | Recognized on the income statement and follows ASC 606. |
Let’s say you sign a $36,000 agreement on January 1st and invoice the client for the entire year upfront. It’s critical to know the complete chronology of events.
The moment the agreement has been concluded, you record $36,000 as a booking.
Next, you submit a $36,000 bill. Your accounts receivable increase by $36,000. After the client transfers finances, your cash balance increases, but your liabilities rise by $36,000.
At the end of January, when you’ve rendered services, your earnings are $3,000. Your deferred revenue liability decreases to $33,000.
Each month, you should record $3,000 until your liability reaches zero.
How to Track and Analyze These Metrics
If you want to build a robust financial system, you need to go beyond simple spreadsheets and use advanced tools. Here’s a detailed description of how to effectively track and evaluate bookings vs billings vs revenue.
- Utilizing SaaS accounting software or analytics dashboards. Successful SaaS financial systems rely on two layers of technology. Your enterprise resource planning (ERP) system maintains the general ledger and ensures tax compliance. An analytics dashboard provides real-time metrics such as client lifetime value and client acquisition cost.
- Aligning booking, billing, and revenue data to perform accurate forecasting. You must adopt a unified system that flows transactions from your CRM (bookings) to invoices (billing) and finally to the profit and loss statement (revenue). Accurate forecasting is impossible if these elements are not connected. If you know that bookings are rising while billings remain stagnant, you may predict a cash flow shortage before it occurs.
- Avoiding double-counting or premature SaaS revenue recognition. Double-counting often occurs when companies account for “renewals” as “new sales.” Another warning sign is premature revenue recording before services are rendered. To prevent this, automate the recognition schedules. The system will then automatically estimate income each month, eliminating human error.
Effective monitoring and analysis of bookings vs billings is impossible without cooperation between sales, finance, and accounting. Sales provides transaction details, while finance experts use the information to support budgeting. Accounting ensures that the final figures comply with legislation.
Common Mistakes and Misconceptions
Mixing bookings vs billings data may lead to serious financial errors. However, in the early stages of SaaS firms, these concepts are often confused, creating challenges during financial due diligence. We’ve highlighted the main problems across the field.
- Avoiding the booking-revenue trap. Bookings encompass the entire cost of signed agreements that signal future work, while revenue is the fair cost of services rendered over a given interval. Under accounting standard ASC 606, if you sign an annual agreement for $24,000 today, your bookings total $24,000, but your income for the month is only $2,000. Such confusion significantly inflates profitability and can create legal issues during an audit or due diligence process.
- When tracking bookings vs billings, don’t ignore deferred revenue when invoicing. Billing occurs when you actually send a payment document to the client. If your customer pays for the next year in advance, you have the funds, but you haven’t earned them yet. These “unearned” finances are deferred revenue. It is reflected on your balance sheet as obligations. If you ignore this and treat it all as “cash” that must be spent immediately, you risk a liquidity crisis.
- Inconsistency between sales and accounting systems. CRM (Customer Relationship Management) solutions are optimized to accelerate sales, while accounting systems are not. Sales teams may record TCV, which often includes non-standard terms, “free” months, or future price increases. If this data is incorrectly matched with the accounting solution, your financial statements will show a picture different from the data in the commercial dashboard. Such an inconsistency leads to “phantom revenue” that disappears during monthly reconciliations, undermining management’s confidence in the data.
- Not accounting for client churn or renewals. “Significant new client growth” may mask product failure if you don’t analyze net monthly revenue (NMR). To get an accurate picture of your product’s health, calculate: (New Revenue + Expansion Revenue) – (Churn + Decline). If you only track the “top line” (new sales), you may not realize that for every $1 you bring in from new clients, $1.10 is lost.
Understanding all the intricacies of bookings vs billings accounting ensures the effective development of a software-as-a-service firm.
Bottom Line
In the SaaS industry, terms like bookings vs billings vs revenue carry distinct definitions and impacts. Booking volumes represent the entire cost of contracted deals and signal future profit. Billings capture invoiced sums, which are crucial to providing money movement control. Revenue from services delivered is a main parameter of overall financial health. Knowing these features enables you to adopt effective management tactics.
Ready to improve the financial parameters of your SaaS firm without the hassle? Cooperate with BooksTime, an organization with deep expertise in the SaaS sector. Our experts offer an organized approach to managing bookings vs billings, and revenue to control financial activity and ensure future development. Consult BooksTime specialists to discover more about how they can optimize and support your subscription services.
