Behind the Curtain: Back-End Considerations for Pledges and Recurring Donations

pledges and recurring donations

We get a lot of questions about the differences between pledges and recurring donations – both are big players in the nonprofit world and have very distinct accounting and CRM implications. Let’s break it down:

  • A pledge is a promise to pay a specified amount over a set period of time. For example, a donor might pledge $2,400 to be paid over four years, by installments of $50 per month. Pledges can be “conditional”, meaning payment comes due only when a condition is met or “unconditional” where there are no strings attached.
  • A recurring donation is series of gifts given repeatedly on an open ended schedule with no specific commitment from the donor. The donor can decide to end the arrangement at any time, or pay indefinitely.

In both scenarios a donor may be gifting $50 per month, so it may feel similar from their perspective, but for the organization there are a number of factors to weigh when deciding which of these two you solicit. They differ significantly in terms of accounting, use cases, back-end processing and the relationship you are establishing with your donors.

Accounting: how will bookkeeping treat it

Pledges and recurring donations are accounted for quite differently. Recurring donations count as revenue as they are received, just like cash donations. With unconditional pledges, the total pledged amount is counted as revenue on the date it is pledged, even though you have no cash in hand yet! Conditional pledges, on the other hand, count as revenue once the pledge conditions are met and for your donors their pledge payment are tax exempt in the year they are paid.

A pledge is a debt owed by the donor, with the advantage that it shows up as projected cash flow, literally pledged into your budget. But that also means you need policies about when to write off the debt if a donor fails to pay. There are also calculations to be done in the revenue projections related to estimated write-offs, an amortized discount … help, where’s my accountant! Recurring donations do not have these accounting burdens… or the benefits of promised cash flow.

With such a big difference on the bookkeeping side, it’s best to consult your accountant and decide which option best meets your fiscal goals.

CRM considerations: how will it look on the back end

There are also different CRM donor database back-end implications for each donation instrument. Recurring donations are just a string of individual gifts. Your donors probably don’t want to be thanked monthly, so determine what is most appropriate in your situation. An annual thank you with the end of year appeal? Or more frequent engagement communications? Only you can determine the sweet spot between appreciating your donors, and irritating them with too many touches.

Since a pledge is a promise to pay a set amount by a particular date, and this full amount is being counted as a receivable, your CRM needs to provide reports that recurring donations don’t require. You must report not just the pledge payments, but total pledged, amount paid so far (distinguishing pledge payments from any other ad hoc gifts from that donor), amount still due, the start and end dates and the payment schedule. Thank You letters should go out for the full value of pledges when they are first made, stating clearly that pledge payments are tax deductible only once they are paid. The donor may want to choose their preferred payment schedule, so be ready to manage different donors on different payment schedules. Donors might wish to be invoiced when installments are due, and might want receipts for payments made. These receipts should show the amount paid, amount due, and remaining balance. When payments are not received, your next invoice will include the full amount due, including both the current installment and any missed payments. Since finance is counting on these payments as positive cash flow, payments that are not made are considered delinquent, and need to be reportable. You need to decide how far you will pursue delinquent pledges, how many reminders should you send before you write a pledge off? So be sure you have the administrative capacity to handle pledges if you chose to go that direction.

For some detailed use cases and more information on the difference between pledges and recurring donations, see Jenny Council’s full post on our blog and watch our webinar with StayClassy.

Idealist Consulting

About Idealist Consulting

Idealist Consulting is dedicated to providing nonprofits, private sector businesses, and government with advanced technical solutions that help them run more effectively. Whether it is Salesforce consulting, mobile development, or technical training, we make every effort to provide thoughtful, ethical and approachable support. Idealist Consulting is recognized as one of the original Salesforce implementation partners and has been a top-rated consulting firm on the AppExchange for five years running. Idealist Consulting has implemented over 700 projects and is endorsed by Gartner for high-speed, low-risk Salesforce deployments. For more information visit www.idealistconsulting.com.

One comment

  1. Do you know which CRMs are best for pledge processing/tracking? I have a client that is having some difficulty setting it up in Salsa…

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