Unearned Revenue

Unearned Revenue is the exact ‘mirror image’ of prepayment. Actually, it is prepayment, only from the seller’s perspective. As a result of this prepayment, the seller now has a liability equal to the revenue earned until deliver of the good or service.

Managing unearned revenue is an extension of managing your accounts receivable. When you require prepayment, you reduce your non-payment risk to zero. At the same time, you also reduce your sales – often significantly. In reality, you have to develop and implement highly efficient credit analysis and scoring system to work on the prepayment basis with exactly the right clientele.