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The Five Most Important Revenue Recognition Issues

By May 19, 2010Article

From the perspective of a software copyright attorney, here are the 5 most important revenue recognition issues (based on my experience).
Acceptance. Make sure there is express language in the license agreement or order that states that the software is ‘accepted’ on the order date. I can bore you with all of the reasons why, but I would simply add this one.
Warranties with refund rights. This is a pretty thorny issue, but in general, other than a standard limited duration performance warranty that the software will perform in material accordance with its documentation and an infringement indemnity warranty/remedy, any additional warranty with refund rights could create a real revenue recognition risk.
Future deliverables. If you think about it, this should be an easy one. The customer is buying the license for the software (as it currently exists), so there should not be any commitment regarding future enhancements (other than standard maintenance/support) in the contract or outside the contract.
Signed agreement. While this should be a no-brainer too, having a signed agreement (that means by BOTH parties) is critical to a final deal. While most people focus on getting the deal done, it is really not done until the agreement is signed (more on this topic: When is a Deal Done). By the way, enforceable electronic or click contracts should be fine.
Fee is clear and collectable. The license agreement and order should be clear about what the customer will receive and what they will pay for. This seems pretty basic to me, but it should not be overlooked with vague descriptions of what will be provided, or unclear and indefinite payment/fee terms.
When working with my software company clients I try to remind them of these basic rules – or at least a software copyright attorney’s take on them.
Jeremy Aber is a Software License Attorney representing Software, SAAS and IT Services Companies, on software licensing, copyright, open source, distribution, reseller, OEM, and master services agreement projects. This article first appeared in his blog.

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