Ecommerce platform BigCommerce (BIGC) is recognizing revenue it now suggests it has little hope of ever collecting. It now appears, based on new langage inserted in its latest quarterly filing, BigCommerce has been giving away its platform to certain customers with little or no expectation they’ll pay. In some cases, the company hasn’t even billed the customer before writing off the customer’s debt as an uncollectible receivable.

It appears certain enterprise customers, lured to BigCommerce by promotional billing, are terminating contracts before the first payment is due:

“When this occurs, we recognize revenue in advance of invoicing creating an unbilled receivable.”

In some cases, BigCommerce can recognize revenue for 90-days before a customer terminates early and the unbilled receivable is written off as uncollectible or a provision is made.

Notably, unbilled receivables as a percentage of total receivables is rising. In the quarter ended September 30, 2022, unbilled receivables had increased to 36.6% of total receivables, up from 32.9% as of December 31, 2021.

It now appears that unbilled receivables, in part, are increasingly being written off as uncollectible. Though BigCommerce grew sales 33.3% in the nine months ended September 30, 2022, the company’s accounts receivable reserve spiked 141.3%. The company blamed the sharp rise, in part, on unbilled receivables:

“The quarter over quarter increase in the provision for credit losses was due to an increase in specific reserves, which led to an increase in the estimate of our overall loss percentage applied to a portion of our portfolio, including unbilled accounts receivable.”

The allowance is now 19.3% of net total receivables.

The worst may be yet to come though.

Notably, BigCommerce is writing off bad receivables much slower than prior quarters while simultaneously increasing its provision for expected credit losses significantly faster than it has previously.

Over the last three quarters, write offs as a percentage of the quarterly credit loss provision have fallen from 48.5% to 7.4%. Conversely, the bad debt provision as a percentage of the beginning period balance has increased from 33.9% to 60.2%.

It’s not clear to us, based on BigCommerce’s disclosures, how much revenue has been recognized from unbilled receivables now being written off or provisioned. The company did insert new language in the latest filing that we believe begs additional questions:

“Revenue recognized in advance of billing is recorded as unbilled accounts receivable. In determining the amount of revenue to be recognized, we determine whether collection of the transaction price is probable. Only amounts deemed probable are recognized as revenue.”

First, BigCommerce’s ability to accurately determine how much is likely to be collected is questionable in light of the credit loss reserve growing much faster than sales. Second, the company suggested earlier in the filing it had the right to immediately begin ratably recognizing revenue even during promotional periods when the first payment isn’t due for 90-days.

DuDil has contacted BigCommerce for additional information regarding what percentage of the current allowance is unbilled receivables. On behalf of the company Ralph Linn at ICR, a strategic communications firm, provided the following response:

"BigCommerce does not break out or disclose the exact level of unbilled receivables within the credit loss reserve. However, I can share that of the $9.3 million allowance, the dollar level of unbilled receivables is less than 1/3 of this amount."