cashflow
Deferred Revenue
Cash collected for services not yet delivered. A liability until the work is done.
Definition
Deferred revenue is money you've collected from a customer but haven't yet earned because the service or product hasn't been fully delivered. Common cases: annual subscriptions paid upfront, retainers paid in advance, deposits on long projects. On the balance sheet it sits as a liability, not revenue - because you owe the customer the future delivery. Cash from deferred revenue is real, usable cash, but it's also a future obligation. Heavy deferred revenue means you've already collected cash for work you still need to do.
In your business
- →Track deferred revenue on the balance sheet - it's a liability, not revenue
- →Don't celebrate cash collected upfront as revenue - it's still a future obligation
- →Deferred revenue can be a strong working capital source if managed cleanly