A revenue contingency is the terms and conditions in a sales contract or business agreement that prevents revenue from being immediately recognized, based on the revenue recognition requirements mandated by US GAAP and International Accounting Standards.
In context to Revenue Management and Reporting , Typical contingencies that can delay revenue recognition include customer creditworthiness, nonstandard payment terms, and nonstandard refund policies.
Typically , most of revune managment system come with predefined revenue contingencies which you can assign to your customer transactions.
You can define your own contingencies based on the predefined contingencies, and you can define revenue contingency assignment rules to control which contingencies are assigned to which transactions.
Moreover , you can assign a contingency to a transaction based on the revenue policy of your enterprise.
You have these options:
- Credit Classification: The contingency is assigned to the transaction if the applicable customer has a credit classification that matches one of the credit classifications defined in your revenue policy.
- Payment Terms: The contingency is assigned to the transaction if its payment terms exceed the payment terms threshold of your revenue policy.
- Refund: The contingency is assigned to the transaction if it includes a refund policy that exceeds the refund policy threshold of your revenue policy.