Unbilled Revenue
Unbilled Revenue
Unbilled revenue represents services delivered but not yet invoiced - an asset on your balance sheet indicating money owed to you.
January 24, 2026
What is Unbilled Revenue?
Unbilled revenue is revenue that a business has earned by delivering services or products but has not yet invoiced to customers. It appears as an asset on the balance sheet because it represents money the company has a legal right to collect.
For example, a software consulting firm completes a major integration project in March but doesn't issue the invoice until early April due to internal approval processes. The revenue from that completed work sits as unbilled revenue throughout March - earned and recognized, but not yet billed.
Why It Matters
Unbilled revenue directly impacts both financial reporting accuracy and cash flow management. For finance teams, it represents a critical metric for:
Cash flow forecasting - High unbilled revenue means revenue has been recognized without corresponding cash collection, creating a working capital gap.
Revenue recognition compliance - ASC 606 and IFRS 15 require businesses to accurately track when revenue is earned versus when it's billed. Unbilled revenue is the accounting mechanism that bridges this gap.
Operational efficiency - Excessive unbilled revenue often signals billing process delays, disconnected systems, or poor milestone tracking.
How Unbilled Revenue Works
Under accrual accounting, revenue is recognized when earned, not when invoiced or paid. This creates a temporary state where revenue exists on the income statement but hasn't entered the accounts receivable cycle.
The Accounting Flow
When services are delivered but not yet invoiced:
When the invoice is finally issued:
This two-step process ensures revenue appears in the correct accounting period while tracking the billing lag.
Common Scenarios
Milestone-based contracts - Professional services firms often bill upon reaching specific project milestones. The gap between milestone completion and invoice generation creates unbilled revenue.
Subscription timing gaps - A customer upgrades their plan mid-cycle. The prorated charges accumulate as unbilled revenue until the next billing cycle.
Usage-based billing - Companies that bill based on consumption (API calls, storage, compute time) typically have a lag between usage tracking and invoice generation.
Manual approval processes - In enterprise contexts, invoices often require internal review and approval before being sent, creating intentional delays.
Unbilled Revenue vs. Deferred Revenue
These concepts represent opposite sides of the revenue timing equation:
Unbilled Revenue - Services delivered, invoice pending. An asset representing money you're owed.
Deferred Revenue - Payment received, services pending. A liability representing work you still owe.
A SaaS company that collects annual subscriptions upfront records deferred revenue (a liability) and recognizes it monthly as services are delivered. Conversely, that same company might have unbilled revenue for implementation services completed but not yet invoiced.
Implementation Considerations
Tracking and Measurement
Finance teams should monitor unbilled revenue as both an absolute value and as a percentage of monthly recurring revenue. A growing ratio often indicates billing process degradation.
Key metrics to track:
Days services outstanding (similar to DSO but for unbilled amounts)
Unbilled revenue aging (how long amounts remain unbilled)
Unbilled revenue by contract type or customer segment
System Requirements
Modern billing systems can reduce unbilled revenue through automated workflows:
Contract management integration - Systems that connect contract terms to billing triggers can automatically generate invoices when milestones are marked complete.
Usage metering - Real-time tracking of consumption events enables faster invoice generation for usage-based models.
Approval automation - Workflow tools can route invoices for approval without manual intervention, reducing administrative delays.
Common Challenges
Cash Flow Impact
Unbilled revenue represents recognized revenue that hasn't been billed, meaning it can't be collected. For growing companies, this creates a working capital drain. The business must fund operations using revenue that exists on paper but not in the bank.
Audit and Compliance Risk
High unbilled revenue balances attract auditor scrutiny. They want to verify that revenue recognition is appropriate and that the receivable will actually be collected. Poor documentation or excessive aging of unbilled amounts can trigger detailed reviews or restatements.
Process Inefficiency Signals
Persistent unbilled revenue often reveals operational problems:
Sales and finance teams working from different systems
Manual handoffs between service delivery and billing
Unclear milestone definitions in contracts
Lack of integration between project management and financial systems
When to Focus on Unbilled Revenue
Organizations should prioritize unbilled revenue management when:
Revenue model complexity increases - Moving from simple subscriptions to usage-based pricing, milestone billing, or hybrid models increases the likelihood of billing delays.
Growth accelerates - Scaling companies often see billing processes break down as volume increases, creating unbilled revenue backlogs.
Compliance requirements change - Implementation of ASC 606 or IFRS 15 requires more precise tracking of the relationship between service delivery and billing.
Cash flow tightens - When working capital becomes constrained, reducing the gap between delivery and billing becomes critical.
Best Practices
Effective unbilled revenue management requires both system capabilities and process discipline:
Automate milestone tracking - Connect project management tools to billing systems so completed milestones automatically trigger invoice generation.
Standardize contract terms - Clear, consistent billing language in contracts reduces ambiguity about when invoices should be issued.
Regular reconciliation - Monthly reviews of unbilled revenue aging can catch process breakdowns before they become material.
Set threshold alerts - Configure systems to flag when unbilled revenue exceeds normal ranges for investigation.
For companies using modern billing platforms like Meteroid, many of these capabilities can be built into automated workflows, reducing manual intervention and shortening the time between service delivery and invoice generation.