Remaining Performance Obligation (RPO)
Remaining Performance Obligation (RPO) is an indicator of a business’s future revenues. It’s essentially the total amount of money that all current customers are contractually bound to spend on its products and/or services in the future.
More specifically, RPO is the sum of all invoiced amounts and any future amounts that have not yet been invoiced for under a contract with a customer. Amounts that have already been invoiced but have not yet been paid will typically be reported on the balance sheet as deferred revenue.
As RPO concerns signed contracts, they’re legally binding and provide a high-level overview of what the revenue pipeline should look like, assuming all payments are made in full and on time.
Remaining Performance Obligation (RPO) Explained:
Remaining Performance Obligation (RPO) FAQs
What is a remaining performance obligation?
A remaining performance obligation is the unfulfilled portion of a contractual agreement between a business and its customer, indicating the goods or services the business is yet to deliver. It’s therefore a strong indicator of the total amount of money that all current customers are contractually bound to spend on its products and/or services in the future.
Why should businesses track RPO?
Tracking remaining performance obligations is important for financial reporting and compliance, as it provides transparency into future revenue streams, helps in revenue recognition, and ensures that businesses meet their contractual commitments.
How do businesses report RPO?
Businesses report remaining performance obligations in their financial statements. It usually forms part of the notes to the financials, detailing the nature, amount, and timing of the remaining deliverables.