Technically, if a customer doesn’t pay because they are not using the product, the accounts receivable write-off should go against revenue, not bad debt expense. If they don’t pay because of financial difficulties (i.e. bankruptcy) then it could be booked to bad dept expense.
I don’t think using the product matters does it? A lot of SaaS companies would be reversing revenue if it did…you should stop revenue tho if it becomes likely they won’t pay and maybe usage is an indicator. But lots pay and never use the product
The auditor piece is wild. I've seen this playbook in action where companies basically shop for lenient auditors who wont push back on COGS classification. The DevOps in R&D trick is especially clever because theres genuinely grey area around whats "innovation" vs "keeping the lights on." I worked at a company tht got crushed on this during due diligence when buyers normalized the COGS. Those AI companies with low S&M are interesting tho, if they can actually sustain self-serve growth without field teams then maybe the lower GM ceiling matters less.
I’m really glad you definitely didn’t give all of our secrets away…
Ps - you look even more resplendent on here than twitter
Haha! Welcome to Substack!
look forward to the cfo stuff that will get discussed here
Technically, if a customer doesn’t pay because they are not using the product, the accounts receivable write-off should go against revenue, not bad debt expense. If they don’t pay because of financial difficulties (i.e. bankruptcy) then it could be booked to bad dept expense.
I don’t think using the product matters does it? A lot of SaaS companies would be reversing revenue if it did…you should stop revenue tho if it becomes likely they won’t pay and maybe usage is an indicator. But lots pay and never use the product
Agree...was just keeping the scenario the same. Also agree that if you know they are not going to pay you shouldn't take revenue. Love your stuff BTW!
Thanks!
This’ll help. https://johnmartinwords.substack.com/p/gross-margin
The auditor piece is wild. I've seen this playbook in action where companies basically shop for lenient auditors who wont push back on COGS classification. The DevOps in R&D trick is especially clever because theres genuinely grey area around whats "innovation" vs "keeping the lights on." I worked at a company tht got crushed on this during due diligence when buyers normalized the COGS. Those AI companies with low S&M are interesting tho, if they can actually sustain self-serve growth without field teams then maybe the lower GM ceiling matters less.