Unbilled revenue arises when a business recognizes revenue before issuing the related customer invoice. It is common in consulting, contracting, construction, engineering, logistics, software subscriptions and other arrangements where service delivery and billing do not occur at the same time.
However, “unbilled revenue” is an operational accounting term rather than a separate balance-sheet category required by IFRS 15. Depending on the contractual rights involved, the recognized amount may be presented as a contract asset or, in some cases, as a receivable.
Correct treatment requires more than confirming that work has been completed. The business must determine whether a valid customer contract exists, identify its performance obligations, calculate the transaction price and recognize revenue only when or as those obligations are satisfied.
This guide explains the IFRS 15 treatment, journal entries, reporting risks and practical controls Saudi businesses should apply.
Unbilled revenue is revenue that a business has recognized even though the related amount has not yet been included in a customer invoice.
The term is commonly used in management reports and accounting systems, but IFRS 15 requires the underlying contractual right to be classified more precisely.
A contract asset arises when the business has transferred goods or services to a customer, but its right to payment remains conditional on something other than the passage of time.
For example, a construction company may recognize revenue for work completed to date but be unable to invoice until a contractual certification or additional performance requirement is completed.
A receivable arises when the business has an unconditional right to consideration. The right is unconditional when only the passage of time is required before payment becomes due.
An uninvoiced amount is therefore not automatically a contract asset. If the business already has an unconditional right to payment, the amount may need to be presented as a receivable even though the invoice has not yet been issued.
Both balances are assets, but they carry different contractual conditions and should be reported separately or clearly distinguished in the financial statements.
Unbilled revenue commonly arises because the contract’s revenue-recognition pattern differs from its invoicing schedule.
Examples include:
A customer payment received before the related goods or services are transferred is not unbilled revenue. It normally creates a contract liability because the business still owes performance to the customer.
A SaaS provider may deliver one month of service before the next invoice is generated. If the service represents a satisfied performance obligation and the amount qualifies for recognition, the provider records revenue and the appropriate contract asset or receivable.
If the customer pays before the service period, the payment instead creates a contract liability until the service is delivered.
Consultants commonly track billable hours during the month and invoice after month-end. Revenue may be recognized over time when the customer simultaneously receives and consumes the benefits of the service.
The recognized amount should be supported by approved time records, contractual rates and evidence that the performance obligation has been satisfied.
Construction revenue is not recognized merely because management considers a phase complete. The business must determine whether the performance obligation qualifies for recognition over time under IFRS 15.
This may occur when:
A logistics provider may perform warehousing, fulfilment or delivery services before billing. Revenue recognition depends on the promised service, the measurement of progress and the billing conditions in the customer contract.
Mastering unbilled revenue accounting offers several important benefits for your business:
Now, let's look at how unbilled revenue fits with accrual accounting standards and affects your financial statements.
Accrual accounting separates revenue recognition from cash collection and invoice timing. However, it does not permit a business to recognize revenue simply because costs were incurred or employees performed work.
Under IFRS 15, revenue from customer contracts is determined through five steps:
The transaction price may also require adjustments for variable consideration, discounts, refunds, penalties, bonuses or a significant financing component.
Only after the relevant revenue qualifies for recognition should the business determine whether the corresponding balance is a contract asset or receivable.
ASC 606 follows a broadly converged model for entities reporting under US GAAP, but Saudi businesses should apply the accounting framework endorsed for their entity by the Saudi Organization for Chartered and Professional Accountants.
The accounting process should begin with the contract and revenue-recognition assessment—not with the invoice schedule.
Determine whether:
For an obligation satisfied over time, select a method that faithfully depicts progress. Depending on the contract, this may be:
The measure should be updated at each reporting date.
Record a contract asset when the right to consideration remains conditional on further performance or another contractual requirement.
Record a receivable when the right to payment is unconditional and only the passage of time is required before payment is due.
Suppose a Saudi engineering company recognizes SAR 100,000 of revenue in December. Its right to invoice remains conditional on customer certification.
Debit: Contract Asset — SAR 100,000
Credit: Revenue — SAR 100,000
In January, the customer certifies the work and the company becomes unconditionally entitled to invoice the amount.
Debit: Accounts Receivable — SAR 100,000
Credit: Contract Asset — SAR 100,000
Debit: Cash — SAR 100,000
Credit: Accounts Receivable — SAR 100,000
Generating an invoice does not create additional revenue when that revenue was already recognized. It changes the classification of the asset when the contractual right becomes unconditional.
If the business had an unconditional right to consideration at the original recognition date, it would record a receivable rather than a contract asset from the beginning.
Saudi entities should apply the financial-reporting framework applicable to them and endorsed by the Saudi Organization for Chartered and Professional Accountants.
Depending on the entity, this may include:
For entities applying full IFRS, IFRS 15 governs revenue from contracts with customers. It does not contain a separate “unbilled revenue accounting standard.” Instead, it determines:
ASC 606 may be relevant to US GAAP reporting, but it should not be presented as the primary Saudi accounting framework.
These principles ensure transparency and consistency in financial reporting, fostering trust and compliance. Now, let’s clarify the differences between unbilled revenue and a closely related concept—deferred revenue.
Under IFRS 15, deferred or unearned revenue is generally presented as a contract liability.
A related third category is accounts receivable, which represents an unconditional right to customer consideration.
A consulting company charges SAR 750 per hour and provides 150 approved hours of service during December. The contract states that the client will be invoiced after the monthly timesheet is approved in January.
If the consulting service qualifies for over-time revenue recognition, the December amount is:
150 hours × SAR 750 = SAR 112,500
Because approval remains necessary before the right to payment becomes unconditional, the company may record:
Debit: Contract Asset — SAR 112,500
Credit: Consulting Revenue — SAR 112,500
Once the timesheet is approved and the right to payment becomes unconditional:
Debit: Accounts Receivable — SAR 112,500
Credit: Contract Asset — SAR 112,500
A construction company is developing a customized commercial facility in Riyadh. The contract qualifies for revenue recognition over time, and the company uses an appropriate input or output method to measure progress.
At month-end, the company determines that SAR 375,000 of revenue qualifies for recognition. Billing remains conditional on certification by the appointed project consultant.
The entry is:
Debit: Contract Asset — SAR 375,000
Credit: Construction Revenue — SAR 375,000
The amount should not be recognized solely because an internal project report labels a phase as complete. The company must support the revenue with the contract, the IFRS 15 assessment and a reliable measure of progress.
Recording employee effort, project costs or an internal milestone as revenue without completing the IFRS 15 assessment can overstate revenue and assets.
Combining both balances in one generic “unbilled revenue” account can hide whether the right to payment is conditional or unconditional.
Long-term projects may depend on cost-to-cost calculations, certified output or another measure of progress. Incorrect forecasts or unapproved scope changes can materially distort revenue.
Variations, change orders, bonuses, penalties and claims may affect the contract scope or transaction price. They should be reviewed under the contract-modification and variable-consideration requirements of IFRS 15.
A balance that remains unbilled for several periods may indicate unresolved certification, incomplete work, contract disputes, billing failures or incorrect recognition.
Contract assets and receivables must be assessed for impairment under IFRS 9. Recognizing revenue does not guarantee that the full amount will ultimately be collected.
Unbilled revenue is typically managed using accrual accounting, which recognizes revenue when it’s earned, rather than when payment is received.
Example: Suppose you’ve signed a year-long service contract worth SAR 1.2 million. If services worth SAR 100,000 are delivered in a given month but not invoiced, that SAR 100,000 should be recorded as unbilled revenue. This ensures your monthly financial reporting remains accurate.
Managing unbilled revenue requires information from contracts, project activity, time records, invoicing and accounting to remain connected.
HAL ERP provides relevant capabilities through:
These capabilities can reduce the gap between operational evidence and accounting records. However, the business must still configure the appropriate accounts, define its revenue-recognition policy and apply professional judgement under the applicable SOCPA-endorsed accounting framework.
Unbilled revenue does not simply mean completed work that has not been invoiced. The business must first establish that revenue qualifies for recognition under the applicable accounting standard.
The essential sequence is:
Request a HAL ERP demo to explore how HAL can connect your project, timesheet, invoicing and accounting workflows.
Unbilled revenue is revenue recognized before the related amount has been included in a customer invoice. Under IFRS 15, the corresponding balance may be a contract asset or receivable depending on whether the right to payment is conditional.
Not always. A contract asset exists when the right to customer consideration remains conditional on something other than the passage of time. If the right is already unconditional, the business records a receivable instead.
The terms are often used similarly in operational accounting, but “accrued revenue” does not replace the specific IFRS 15 distinction between contract assets and receivables.
No. Classification depends on the organization’s operating cycle, contractual terms and applicable financial-statement presentation requirements. IFRS reporting can include both current and non-current contract assets.
When revenue qualifies for recognition but the right to payment remains conditional:
When the right becomes unconditional:
No. A customer payment received before the related goods or services are transferred normally creates a contract liability or deferred revenue.
No. The milestone must be assessed under the contract and IFRS 15. The business must determine whether the performance obligation has been satisfied and whether the revenue amount is appropriately measured.
Recognizing unbilled revenue increases accounting revenue and assets but does not create cash. Cash collection normally begins only after the right becomes billable, an invoice is issued where required and the customer pays.
Yes. IFRS 15 requires contract assets to be assessed for impairment under IFRS 9.
ERP software can connect contracts, projects, timesheets, invoicing, receivables and journal entries. The business must still establish its accounting policy, configure the workflow and review whether each revenue amount meets the applicable recognition requirements.
