Order to cash
After every order, three tracks run at their own pace: billing follows the billing terms, revenue follows the performance obligations, and fulfilment follows the goods and the work. The period only closes when the three agree.
Reconcile the three tracks
- Delivered, not yet invoiced: a contract asset, or a receivable once the right to payment is unconditional.
- Invoiced or paid, not yet delivered: a contract liability, the deferred revenue.
- Delivered, invoiced and recognised: the three tracks agree, and the period can close.
Scroll sideways to see the whole chart.
- Billing
- Revenue
- Fulfilment
Three tracks, three clocks
The contract starts all three. Billing follows the billing terms: in advance, in arrears or by milestone. Revenue follows the performance obligations: at a point in time or over time. Fulfilment follows the goods and the work: shipped, delivered, accepted or returned. None of the three waits for the others.
Reconciliation is the hard part
At every period end the three tracks are brought together, contract by contract. Where they differ, the difference is not an error but a balance sheet item, and the ERP has to know which one:
- Delivered, not yet invoiced: a contract asset, or a receivable once the right to payment is unconditional.
- Invoiced or paid, not yet delivered: a contract liability, the deferred revenue.
- Delivered, invoiced and recognised: the three tracks agree, and the period can close.
Source: IFRS 15 Revenue from Contracts with Customers, IFRS Foundation.