Accounting Best Practices, Fifth Edition

4–4. Do Early Billing of Recurring Invoices

There are many situations in which a company knows the exact amount of a customer billing well before the date on which the invoice is to be sent. For example, a subscription is for the preset amount, as is a contractual obligation, such as a rent payment. In these cases, it makes sense to create the invoice and deliver it to the customer one or two weeks in advance of the date when it is actually due. By doing so, the invoice has more time to be routed through the receiving organization, passing through the mailroom, accounting staff, authorized signatory, and back to the accounts payable staff for payment. This makes it much more likely that the invoice will be paid on time, which improves cash flow and reduces a company’s investment in accounts receivable.

The main difficulty with advance billings is that the date of the invoice should be shifted forward to the accounting period in which the invoice is supposed to be billed. Otherwise, the revenue will be recognized too early, which distorts the financial statements. Shifting the accounting period forward is not difficult for most accounting software systems, but the controller must remember to shift back to the current period after the invoice processing has been completed; otherwise, all other current transactions that are subsequently entered will be recorded in the next accounting ...