How much cash is your billing process leaving on the table?

Every extra day between delivering value and sending an invoice is another day you’re waiting to get paid.

And as pricing gets more complex, with usage, tokens, credits, commitments, and custom terms, billing lag compounds fast.

Tabs is built to eliminate that lag by turning contracts and usage into accurate invoices automatically, without the spreadsheets and manual work.

The impact? Faster billing. Faster cash. Less work for finance.

So what is billing lag costing your business?

Use the Tabs Billing Lag Calculator to get your number. 

Not sure if you know about my passion project, but I write a second newsletter for PE backed finance leaders. It’s called Looking for Leverage.

If your cap table has names on it like Vista Equity, Thoma Bravo, KKR, or Warburg Pincus, this newsletter is for you.

The last three topics we’ve covered:

As an FP&A lad, whenever our accounting team brought up deferred revenue, my brain would transmute into a jelly donut. All I’d hear was

This is just one of my many deferred revenue foibles. I’ve also incorrectly assumed that just because we signed a contract, we created a whack of deferred revenue. Apparently not always true.

So consider this your guide to deferred revenue, explained for smart finance people who are not CPAs. I am here to ask the stupid questions for you.

Deferred revenue comes from accrual accounting, where we recognize revenue when we earn it, which can happen before or after the cash arrives.

We make corresponding changes to the Income Statement and Balance Sheet as we deliver the stuff we promised people in the real world.

I hate to do it to ya, but the super boring, jelly donut inducing definition says that deferred revenue arises when cash is received or an unconditional payment obligation becomes due before you deliver the goods or services.

Don’t run for the hills just yet. Let me break it down.

The second part of that sentence, unconditional payment obligation, is what causes most of the “edge case” confusion. Which, honestly, isn’t really edge case confusion. It’s just how companies normally do business.

A customer can unconditionally owe you money before the service they’re paying for begins, like the first ad you run for a sponsor or when their SaaS licenses turn on. That can create deferred revenue even if you haven’t collected and don’t have the customer’s cash in the bank yet.

But sending an invoice early doesn’t, by itself, create deferred revenue. You can send the bill before the contract gives you an unconditional right to payment.

For example, say I sign a $120,000 annual sponsorship for next year because this newsletter fucking rocks. If payment isn’t due yet and they haven’t paid, signing alone doesn’t create $120K of deferred revenue. Neither does emailing them an invoice just because I’d like the money.

If they pay early, though, we do have deferred revenue. Cash goes up by $120K, and so does the liability for the advertising I still owe them.

Alternatively, if the $120K becomes unconditionally due before they pay, we record accounts receivable and deferred revenue. It’s the same obligation to deliver the ads, and a different asset sitting across from it on the Balance Sheet.

One version comes with cash. The other means I gotta call my ferocious miniature Bernedoodle enforcer, who despite his cuteness and stature, best believe, always collects.

If you can’t tell, the key is the contract’s payment terms and whether cash has arrived, not simply whether I’ve zipped them an invoice.

Sending a bill and having an unconditional, enforceable right to payment aren’t automatically the same thing.

In fact, in a weird seven circles of hell situation, you can be late on billing and already have deferred revenue, even though you have neither an invoice in the customer’s inbox nor cash in your bank.

At which point you should probably figure out who forgot to send the invoice.

People, including myself for 1.5 decades, often use “signed,” “billed,” “due,” and “collected” interchangeably. But they’re separate events.

Oh, and delivering the service adds another clock: when you actually earn the revenue. We didn’t even get to that part yet.

As I iron out my khakis for tomorrow’s conference (yes, I consider it my preordained mission to make khakis cool again), I’m reminded of an important wrinkle when it comes to deferred revenue:

Deferred revenue doesn’t necessarily mean cash in the bank.

So when someone says, “We have $10 million of deferred revenue,” the best follow-up is:

Deferred revenue sits at the icy, foggy, raining and hailing intersection of those components: payment has been received or become unconditionally due, but we haven’t earned the revenue yet.

Let’s go through a biz I actually understand.

A sponsor signs a $120,000 contract for 12 newsletter placements running from October through December. For simplicity, each placement is worth the same amount ($10K), and we’ll run four per month.

The contract is signed September 1, with the full payment unconditionally due September 15, upfront before the advertising period begins. Here’s how the four components play out:

On September 1, we have a signed $120,000 deal. Sales guy Matthew can put it on the board, and I give Walter an ice cream.

But we haven’t run any ads, received any cash, or reached the contractual payment date yet.

We have a booking at this point in time (which rocks), but do not yet have deferred revenue.

September 15 shows up. The Patriots are hopefully 1–0. Whoops.

The sponsor now unconditionally owes us $120,000 under the contract, and we still owe them all 12 placements.

We record:

Our cash balance hasn’t moved, and neither has recognized revenue.

Now, assume I forgot to send the invoice until September 20 (but I would never do that because I have an excellent accountant, Michelle).

The late invoice doesn’t push the accounting back five days. In this example, the contract already made payment unconditionally due September 15. Sending the bill is simply catching up with an obligation that already exists.

One caveat: this would be a different analysis if submitting a valid invoice were a substantive condition of our right to payment. Many of our larger sponsors have invoice requirements, so you have to read what you signed. Read. The. Payment. Terms. Did I mention you gotta read the payment terms?

The sponsor pays September 30. Cash goes up by $120,000, and accounts receivable falls to zero. Deferred revenue stays at $120,000 because we still haven’t run any ads. Those start in October.

And if the payment is late? Assuming the amount remains enforceable and collectible, the receivable stays outstanding until they pay. Deferred revenue comes down as we deliver the placements, whether or not the cash has arrived.

Each time we run one of the promised ad placements (and earn them a bajillion dollars in sales from our amazing readers), we recognize $10,000 of revenue and reduce deferred revenue by the same amount.

Assuming the sponsor paid September 30, the deal looks like this:

The revenue follows the placements. If we run six in October and two in November (say there were two S-1 filings that I just HAD to cover), we recognize $60,000 and $20,000 in those months, respectively. The words “three-month sponsorship” do not automatically make it $40,000 per month.

So to take a step back, on September 15, we had $120,000 of deferred revenue and zero cash from the deal. My kids need shoes!

On September 30, we had the same deferred revenue balance and all the cash. Daddy bought Jordans!

Maybe customers paid upfront and the business gets to use that cash while it delivers what it owes them. We love that. It’s considered an interest free loan in the circles I travel in.

Or maybe a chunk of it is still sitting in accounts receivable, and someone on the accounting team is sending “just circling back on payment” emails to a deadend [email protected] email address.

Both can show up in deferred revenue. And yet only one helps you make payroll and buy your kids zapatos.

So read the payment terms (did I mention read the payment terms?). And please, for the love of creased khakis, send the invoice.

MCP is the most consequential change to the finance profession in the last 25 years.

Think of it as a way to replace all those impossibly long sumifs and fuzzy vlookups with a powerful data retrieval layer across multiple knowledge graphs.

It's a connection protocol like an API that's super flexible. And even better, you can use natural language! No more formulas! Hell, you don't even have to spell it right!

Engineering had it's "chat gpt moment" with cursor and codex. Support had it with decagon and sierra. Finance had to wait like an extra two years. But it's here!

However, for it to work to its full potential, you need to build tracks for agents to travel upon. And there are three data primaries for these knowledge graphs: the employee level (think: Rippling's employee graph), the vendor level (think: Ramp's vendor graph), and the customer level (think: Tabs customer graph).

So how do you build around that data?

I brought a friend to discuss terms like MCP, Harness, and Headless (in plain English) and how finance can present increasing amounts of context to these protocols.

Join me and Ali Hussain in part two of our series on the new AI economy.

Tune in. And BYOSL: Bring ya own sub ledger

Wishing you make good use of your prepayments, despite the revenye’s deferred nature,

CJ