Whether you prebill for media or you bill half upfront on a job for services or strategy, no matter what when you bill a client and it’s prebilled, meaning you’re billing it before the work is done. That should not show up on your P&L at all. That is not income to you. It’s actually a liability and should show up on your balance sheet.
And here’s why? If the client changes their mind and asks for the money back, you haven’t earned that money yet. You have to give them back their money. And so that’s why, number one, all agencies need to work on an accrual basis. And number two, how you book that income and when it’s income is very important in terms of tracking your AGI, your growth, your revenue, etc.
Let’s say you prebill a client for $100,000 of a media spend, and 15% of that is going to be commissioned to you. All $100,000 should be booked as a liability. So you want to show that it came into the company. But it sits on your books as a liability until you actually do the work or place the media buy, until you spend the money in one way or another, then you bring it over to your P&L. 15% becomes income and the rest becomes a cost of goods expense and an equal amount of income on the client’s invoice side.
