Whether they’re deposits for peak-season stays or prepayments for long-term bookings, advance payments are a routine part of running an accommodation business. Yet these advance payments bring a unique accounting challenge: managing deferred revenue (also known as “unearned revenue”). If not handled correctly as a liability, deferred revenue can leave your accounts out of balance, distort your financial statements, and expose you to compliance risks.
The issue with deferred revenue
Deferred revenue refers to funds you receive before the service is provided – money that legally belongs to the guest until they arrive and the stay begins. A common mistake many accommodation businesses make is prematurely recording these advance payments as revenue, which inflates income and creates misleading financial reports. Worse still, it can lead to unexpected tax obligations if the income is reported before it’s actually earned.
This mistake often happens because manual processes make it easy to lose track of advance payments, especially when accommodation businesses are juggling multiple bookings, dates, and guest types. While failing to properly classify and track advance deposits is one of the most frequent accounting pitfalls, it’s also one of the easiest to solve – with the right systems.
How to manage deferred revenue effectively
Accurate deferred revenue management requires two things: automation and visibility:
- Automation ensures advance payments are correctly recorded as liabilities and automatically converted to revenue when a guest’s stay begins.
- Visibility lets you know exactly how much deferred revenue you’re holding, when it’s due to convert, and how it impacts your cash flow at any moment.
A comprehensive all-in-one property management system (PMS) like eviivo Suite™ allows operators to set up automated rules for deferred revenue accounting, removing the guesswork – and busywork – of manual calculations. Your PMS should also integrate seamlessly with your accounting system, so payments, booking dates, and revenue recognition stay synchronised, ensuring accuracy across your records.
Transparency is just as important as accuracy. Guests should clearly understand:
- When their payments become non-refundable
- How cancellations affect deposits
- What they can expect on their invoices
Consistent communication of these points not only prevents disputes but also strengthens guest trust.
As your business grows, deferred revenue becomes even more critical to get right. Without accurate tracking, it’s easy for liabilities to accumulate unnoticed, creating sudden accounting headaches and making financial planning unreliable.
But when managed properly, deferred revenue supports better forecasting, ensures compliance with tax regulations, and provides peace of mind that your books reflect the true financial state of your business.
For practical steps to automate invoicing and maintain compliance, download our Invoicing White Paper.
Stay tuned for Part 4, where we’ll look at how to simplify invoicing and OTA reconciliation for a smoother month-end process.