Instalment sales: revenue vs. collections

Real estate developers often sell units years before they are delivered, on instalment plans that run well beyond handover. The profit and loss account and the bank account then tell two very different stories.

Revenue is not collection

Depending on the accounting policy, revenue may be recognised on handover or over the construction period. Collections follow the payment plan. A strong sales year can therefore show modest revenue and a stretched treasury, or the reverse.

What management should track

• Contracted sales and the collection schedule behind them, unit by unit
• Overdue instalments by age, and the policy for each bucket
• Construction spending against collections, project by project
• The funding gap in each quarter, before it becomes urgent

Pricing and payment plans

Longer plans sell units faster but cost the developer financing. Every change to down payments or plan length should be priced against its effect on the project’s cash curve, not only on monthly sales.