When a dues invoice is created through a membership renewal, Novi simultaneously updates that member's expiration date to reflect the renewal.
For many, this seems a bit counterintuitive. The member hasn't paid the dues invoice, so why should their expiration date be updated?
The reason Novi updates a member's expiration date at the same time the dues invoice is created is rooted in accounting practices. Novi AMS, like QuickBooks and most businesses, follows the accrual accounting method.
Accrual accounting records revenue and expenses at the time they are incurred, regardless of when cash changes hands. This is different from the cash accounting methodology that many small service businesses use where revenue is not counted until the check is in the bank.
The accounts receivable report that you may be familiar with is a product of accrual accounting. The outstanding invoices listed on that report have already been counted towards your association's revenue. If they're not collected, your organization would have to "write them off" and declare a loss.
When a dues invoice is issued, there is an assumption that the invoice will be paid. If your dues rules are mapped via QuickBooks Items to revenue accounts, then the dues revenue will appear on your Profit & Loss (also known as an Income Statement). This revenue is booked regardless of when the invoice is actually paid.
For many who aren't "numbers" people, it can still be a struggle to understand the basic question: Why should a person or a company be called a member and receive member benefits if they haven't paid?
For renewing members, the reality is that most members will eventually pay that invoice, and most associations will continue to offer those members benefits until the invoice is paid.
Non-Renew & Credit
If a member chooses not to renew and to leave their dues invoice unpaid, the Novi team highly suggests that you not simply delete that dues invoice from QuickBooks. Doing so could alter your financial reporting from previous periods. Instead, you'll want to non-renew & credit.
Approval for New Members
When it comes to new members, Novi offers some additional functionality. For each member type, an association can require that new members be approved by association staff. Note: If the new member is a company, any inheriting staff signing up under the company will be non-members until the company is approved.
AE Tip™: Some organizations choose to break with accrual accounting principles and use the member approval as a safeguard against bad apples who would sign up for membership without any intention of paying their dues invoice.
This information is provided for educational purposes only. As always, we highly suggest that you review any accounting information with your CPA or another qualified expert prior to acting on it.
During this roundtable, we heard best practices from four experienced Novi customers on how their organizations handle Revenue Recognition and reporting.