How deferred revenue causes problems for subscription companies
Do not ever presume that money in your deferred revenue account can be used for re-investment or paying for overheads; if a customer cancels their subscription, you'll need to return a sum equivalent to the unfulfilled time on their subscription (i.e., nine months' fee, if that's how long they had left on their subscription).
2. Faulty financial predictions
Companies often factor deferred revenue, along with real revenue, into their measures of future revenue growth. However, this can lead to an “illusion of growth:" a deferred revenue balance that sits far higher than an actual revenue balance.
This can mislead investors into believing growth is faster than is really the case. And the longer your invoice period, the higher the risk of overstating your growth potential.
3. Multiple deliverables
If your company provides an instant-access service (online educational courses, for instance) using a subscription model, you will then have to contend with “multiple deliverables.” This means that some of what you are providing is considered fulfilled at purchase, but other aspects will be provided later. So, your revenue is part-earned and part-deferred.
These can lead to accounting issues for your company: the separate stages of delivery, whether you're delivering goods or a service, must be tracked carefully.
Bad practice with accounts can be the difference between life and death for SaaS companies. Proofing against human error and building up your understanding of the SaaS financial model is paramount.
We can see a model of multiple element revenue recognition here, where revenue from the various deliverables are tracked separately.