What is Unbilled Revenue?

Unbilled revenue is recognized revenue a business hasn’t billed its customers for. In other words, the business has earned the revenue by delivering its contracted goods or services, but hasn’t yet generated an invoice to collect payment from the customer. Also called accrued revenue, it’s reported as an asset on the balance sheet.

There are three reasons your business might have unbilled revenue:

Invoice delays. If your system delays a customer invoice after a recurring billing date, any payments made during that lag period will be considered unbilled receivable. This highlights the significance of a dependable subscription billing platform: having accurate, automated, and timely invoices every time saves you from this issue.
Advance payments. Receiving payment in advance of a billing date is classified as an unbilled receivable since you haven’t generated the invoice for the service yet. This happens when customers upgrade their product or purchase add-on services during their subscription period.
Agency/contractor billing. Since revenue is recognized when it’s earned, not necessarily when cash is received, agencies and contractors that invoice their clients after providing services or hitting contract milestones will have unbilled revenue on their balance sheets.
One-time projects. SaaS companies may bill customers for implementation or onboarding after completion.

While a company’s unbilled revenue isn’t sitting in its account just yet, it’s still a critical component of its financials. It represents work they’ve already done, so there is no contingency on whether they will ever receive the payment for it. Instead, unbilled revenue is simply awaiting invoicing and collection.

Synonyms

Unbilled A/R
Unbilled receivables
Accrued revenue
Services performed but unbilled

Importance of Tracking Unbilled Revenue

Tracking unbilled revenue is important for three reasons:

You have to recognize that revenue. To comply with Generally Accepted Accounting Principles (GAAP), a company needs to recognize revenue when it’s earned, even if there isn’t an invoice to show for it. The first step to knowing when and how much revenue to recognize from your contracts is tracking it in the first place.
It’s a crucial part of your overall financial performance. Accrued revenues are part of the bigger picture. Your finance team needs to know how much the company stands to earn from invoices in the near future to plan the company budget, consider investment options, and prepare accurate revenue forecasts.
It prevents revenue leakage. Properly accounting for all your accounts receivable ensures you aren’t losing out on any potential income due to forgotten or missed invoices and incorrect tracking.

Translation: If you don’t track and account for unbilled revenue, you’ll…

be GAAP-noncompliant.
make critical high-level business decisions based on incomplete financial data.
lose money from billing errors and customer contracts your team failed to account for.

Each of these risks can cost your business millions. Accounting for the revenue you haven’t invoiced yet is an easy way to protect yourself from these potential pitfalls.

Understanding how unbilled revenue fits into the broader context of revenue recognition is crucial for maintaining accurate financial records and ensuring compliance with accounting standards such as ASC 606 and IFRS 15. Several revenue-related terms are often used interchangeably, but each has distinct meanings and financial implications.

Unbilled Revenue vs. Deferred (Unearned) Revenue

These two terms are opposites in terms of revenue recognition:

Unbilled revenue refers to revenue that has been earned by delivering goods or services, but the customer has not yet been invoiced. This typically occurs when services are rendered over time, or billing cycles lag behind service delivery.
Deferred revenue (also known as unearned revenue) is the opposite: it’s money that has been invoiced and received before the company has delivered the product or service. This revenue cannot be recognized yet and is recorded as a liability on the balance sheet until the service is performed or product delivered.

In essence:

Unbilled revenue = Earned but not billed
Deferred revenue = Billed but not earned

Unbilled Revenue vs. Accrued Revenue

These two are closely related and often confused:

Accrued revenue is a broader term that includes all earned revenue that has not been received, regardless of whether it has been billed or not.
Unbilled revenue is a subset of accrued revenue. It specifically refers to revenue that has been earned but not yet invoiced. Once it is billed, it becomes accounts receivable.

So, while all unbilled revenue is accrued revenue, not all accrued revenue is unbilled.

Deferred Revenue vs. Accrued Revenue

Deferred revenue is a liability: you’ve been paid in advance and owe a product or service.
Accrued revenue is an asset: you’ve earned the revenue but haven’t received payment.

These distinctions are essential for correct financial reporting, particularly in subscription-based or project-based business models, where timing differences between service delivery, billing, and cash receipt are common.

How to Account for Unbilled Revenue on Balance Sheet

In accrual-basis accounting, unbilled revenue is recognized when a company has earned revenue by delivering goods or completing services, but has not yet invoiced the customer. While the invoice is pending, the earned revenue is recorded as a current asset (often called a contract asset or unbilled receivable) on the balance sheet. At the same time, the revenue is recognized on the income statement.

Step 1: Identify Unbilled Revenue

Unbilled revenue includes any portion of a contract or project where performance obligations have been met but billing has not yet occurred. This typically happens in long-term or milestone-based projects. It does not include advance payments from customers; those are recorded as deferred revenue, a liability.

Step 2: Record Unbilled Revenue

When a performance milestone is met (such as completing a phase of a project), but the invoice has not yet been issued, the company makes the following journal entry:

Debit: Unbilled Revenue (Balance Sheet – Asset)
Credit: Revenue (Income Statement)

This reflects earned revenue and the corresponding right to receive payment, even though an invoice hasn’t been sent.

Step 3: Invoice the Customer

Once the customer is invoiced, the unbilled revenue is reclassified as accounts receivable:

Debit: Accounts Receivable (Balance Sheet – Asset)
Credit: Unbilled Revenue (Balance Sheet – Asset)

No additional revenue is recorded at this stage because it was already recognized when the performance obligation was fulfilled.

Example:

Suppose CloudTech, a B2B software company, signs a $60,000 contract to develop a custom CRM system over 12 months. The contract defines two milestones:

$30,000 due at Month 6 (first iteration complete)
$30,000 due at Month 12 (final delivery)

At Month 6 (milestone completed, invoice not yet issued):

CloudTech recognizes earned revenue and records:

Debit: $30,000 to Unbilled Revenue
Credit: $30,000 to Revenue

When the invoice is issued:

Debit: $30,000 to Accounts Receivable
Credit: $30,000 to Unbilled Revenue

This process continues for the second milestone at Month 12. Throughout, revenue is recognized when earned, not when billed.

How to Recognize Unbilled Revenue from Contracts

Depending on where your company is doing business, you will have to follow ASC 606 or IFRS 15 standards for revenue recognition.

ASC 606 Standard

ASC 606 is the revenue recognition standard under GAAP. It provides a five-step process to identify, measure, and report revenues from contracts with customers.

Identify the contract with a customer. If you have a contract, you’ve already done this.
Identify the contract’s performance obligations. These are promises to deliver goods or services, and they form part of your agreement with the customer.
Set the transaction price. This is the total amount your company expects to earn (and your customer must pay) in exchange for transferring goods or services.
Allocate the transaction price to performance obligations. Allocate revenue based on value delivered to date (e.g., milestones) or upon completion, depending on how you’ve agreed with customers.
Recognize revenue when you satisfy a performance obligation. This happens when you’ve delivered the product or service, and the customer has control over it. For example, if you’ve passed a milestone in an implementation project, you’d recognize that portion of the revenue even if you’re paid months later at the contract’s end.

IFRS 15 Standard

IFRS 15 is a similar revenue recognition principle, but it applies to international companies operating in multiple jurisdictions, including Canada, Australia, and the European Union.

Under IFRS 15, the same five-step process exists. The main difference between the two is that ASC 606 allows firms to create a policy that excludes sales tax from the price of the transaction. IFRS 15 does not.

How Billing Technology Helps to Minimize Unbilled Revenue

Modern automated billing technology plays a critical role in minimizing unbilled revenue by streamlining and automating the processes that lead to timely and accurate invoicing. When manual processes or disconnected systems delay billing, unbilled revenue accumulates, creating cash flow gaps, compliance risks, and reporting inaccuracies. This is where advanced billing and revenue automation tools come into play.

Automating the Revenue Lifecycle

Solutions such as Quote-to-Cash (Q2C) platforms and subscription management software automate the entire revenue lifecycle, from quote generation and contract execution to service delivery, invoicing, and revenue recognition. By eliminating manual handoffs and syncing billing with real-time service usage or contract milestones, these tools ensure that revenue is recognized and invoiced promptly.

Key Benefits of Automated Billing Technology

Real-Time Usage Tracking: For businesses with usage-based or consumption billing models, automated systems can track customer activity and convert it into billable records without delay.
Accurate Invoicing: By integrating with CRM, ERP, and CPQ systems, billing software ensures that all earned revenue is captured and invoiced based on agreed terms.
Revenue Recognition Compliance: Automation helps align billing and accounting with standards like ASC 606, reducing the risk of errors in revenue timing and classification.
Workflow Efficiency: Automated approval workflows and billing triggers reduce administrative lag and shorten the order-to-cash cycle.
Dunning Management: Setting up automated dunning management minimizes Days Sales Outstanding.

Integrating Q2C and Subscription Billing for Maximum Impact

Combining Q2C platforms with subscription billing capabilities allows companies to manage complex pricing models, mid-cycle changes, and renewals with ease, ensuring no revenue slips through the cracks. This is particularly important for SaaS, telecom, and services industries where high contract volumes and recurring billing models are common.

People Also Ask

What is billed revenue and unbilled revenue?

Billed revenue is the amount a company has invoiced and received payment for from customers. Unbilled revenue is the opposite — it’s the amount of work completed but not yet invoiced or received payment for.

What is unbilled revenue in electric utilities?

In the context of electric utilities, unbilled revenue refers to the amount of electricity used by customers that they haven’t yet paid for. This can occur when meter readings are delayed or when customers have not yet been invoiced for their usage. Unbilled revenue is important for utilities to track because their usage-based billing model means that meter readings and continuous usage impact their asset accounts in real-time.

Is unbilled revenue the same as unbilled accounts receivable?

Not exactly, but they are closely related. Unbilled revenue refers to earned revenue that a company has not yet invoiced. It is recognized as an asset on the balance sheet because the company is entitled to payment, even though an invoice hasn’t been issued.

Unbilled accounts receivable is a more specific term that often appears in accounting systems to represent this same type of asset, revenue that has been earned but not billed. In practice, many organizations use the terms interchangeably, but from a technical perspective, unbilled accounts receivable is the account used to track unbilled revenue in the general ledger.

What are the financial and operational risks of high unbilled revenue balances?

High unbilled revenue balances can signal inefficiencies or weaknesses in billing and operational processes. Financially, it can distort revenue visibility and delay cash inflows, putting pressure on working capital and increasing the risk of missed forecasts. Operationally, it may reflect delayed invoicing, poor contract management, or misalignment between sales and finance teams.

Over time, prolonged unbilled revenue can lead to disputes, write-offs, or revenue recognition issues, which may impact audits and compliance with standards like ASC 606 or IFRS 15.

How can companies reduce unbilled revenue?

To reduce unbilled revenue, companies should streamline their billing and revenue recognition processes through automation and tighter integration across sales, operations, and finance. Key strategies include:

– Implementing Quote-to-Cash platforms to unify quoting, contracting, and billing.
– Using subscription and usage-based billing software that automatically tracks services delivered and generates timely invoices.
– Aligning performance milestones and contract terms with clear billing triggers.
– Regularly reviewing billing schedules, project timelines, and service delivery logs to ensure earned revenue is promptly invoiced. By minimizing manual delays and increasing process transparency, companies can reduce unbilled revenue and improve cash flow predictability.