When the customer finances delivery
Consider a twelve-month service sold for €120,000 and paid for in full on day one. Assume a single obligation fulfilled evenly throughout the year. After three months the provider has recognised €30,000 in revenue, holds €120,000 in gross receipts and still owes nine months of service. The remaining €90,000 is a contract liability in this simple example, not surplus cash that can automatically be distributed. Delivery costs and any refund terms still matter.
When the contractor finances the customer
Now consider a €120,000 engineering contract that qualifies for recognition over time. Assume progress of 25% faithfully measures performance and the next invoice cannot be issued until a later milestone. The contractor recognises €30,000 in revenue but has received nothing. If the right to payment remains conditional on more than the passage of time, the amount is a contract asset, not a trade receivable. A project that does not qualify for over-time recognition would follow a different earnings pattern altogether.
Watch renewal and acceptance dates
Advance billing can generate cash as a subscription business grows; slow renewals can remove that advantage before headline revenue visibly declines. In project work, a delayed acceptance test can tie up cash even when the customer remains solvent. Compare opening and closing contract balances, invoicing milestones and subsequent collections. These details help distinguish a change in contract timing from weakening demand or poor collections.
Practical check
Put performance, invoicing and collection on three separate lines of the same calendar before comparing the two businesses’ cash conversion.