IT services firm in 2026: revenue recognition, fixed-price and time-and-materials

Quick answer. An IT services firm (in France, an "ESN") recognises revenue according to the contract type: in time-and-materials, revenue follows the billing of days delivered; for fixed-price work, it is recognised by percentage of completion (article 622-2 of the French Chart of Accounts) or on completion. As soon as a fixed-price contract's total estimated cost exceeds its price, an onerous-contract provision is mandatory. The new Chart of Accounts has applied since 1 January 2025.

An IT services firm bills its work under two main models: time-and-materials (technical assistance, consultants made available, an obligation of means, billed by time spent) and fixed-price (a project at a set price, an obligation of result over a defined scope). The method of revenue recognition follows directly from this contractual choice.

Recently, an IT services firm of around thirty consultants consulted us: it recognised the entire price of its fixed-price projects on signing, inflating turnover at the start of the contract. On a project that had become loss-making, it had also recognised no provision. We restored percentage-of-completion and the onerous-contract provision. Here are the principles.

In time-and-materials, revenue is recognised as work proceeds: each consultant-day delivered is income, billed at the average daily rate. At year-end, days delivered but not yet billed are recorded as accrued income (account 418), to match revenue to the correct year. Amounts billed in advance for work not yet performed are, conversely, deferred income (account 487).

A fixed-price project is a long-term contract once it spans several months and crosses a year-end. Two methods exist:

1. Percentage-of-completion (article 622-2 of the Chart of Accounts): revenue and result are recognised in proportion to the degree of completion, measured for example by costs incurred over total estimated costs, or by technical milestones. It is the reference method, reflecting actual progress.
2. Completed-contract method: revenue is recognised only on delivery or acceptance. More conservative, it defers the result to the end of the project.

The degree of completion must rest on reliable evidence (time tracking, contractual milestones). A loose estimate distorts the result and complicates audits.

This is the most often-overlooked point. As soon as a fixed-price contract's total estimated cost exceeds its contractual sale price, the firm must recognise an onerous-contract provision immediately, for the full estimated loss (less any loss already recognised through completion). This obligation applies whatever method is used (completion or completed-contract).

In practice:

1. estimate the total cost at completion of the project;
2. compare it to the sale price;
3. if the result at completion is negative, provide for the loss without waiting for the contract to end.

Take a fixed-price project sold for €100,000, with a total estimated cost of €80,000. At year-end, €60,000 of costs have been incurred, i.e. 75% completion (60,000 / 80,000). Revenue recognised by completion is therefore €75,000, and the margin €15,000.

If, conversely, the total estimated cost were revised to €110,000 (above the sale price), the firm would immediately recognise an onerous-contract provision covering the €10,000 foreseeable loss, beyond the result already recognised through completion. It is this anticipation, not waiting for delivery, that gives a true and fair view of the contract.

R&D and innovation tax credit#

An IT services firm developing innovative software may be eligible for the research (CIR) or innovation (CII) tax credit. Per-project time tracking, already essential to revenue recognition, also helps justify these schemes: support on the research and innovation tax credit secures the base.

VAT and deposits#

An IT services firm's work is subject to the standard 20% VAT rate, due on collection (deposits included), as for an agency on its deposits — unless it opts for the "débits" method. For work supplied to a client established outside France, specific place-of-supply rules apply.

Bench time and subcontracting#

Bench periods (consultants not on assignment) are costs with no associated income, to monitor in management. Subcontracting external consultants is a cost, distinct from in-house production.

• Do not recognise the fixed price on signing: revenue is recognised by completion or on delivery, not all at once.
• Provide for any loss at completion as soon as it is foreseeable, without waiting for the project to end.
• Keep reliable time tracking: it underpins completion, accrued income and the R&D-credit base.
• Match revenue to the year: accrued income (418) for days delivered, deferred income (487) for amounts billed in advance.
• Separate time-and-materials from fixed-price in cost accounting: the margins and risks differ.

An IT services firm's main difficulty is not time-and-materials, easy to track, but fixed-price. Recognising the price on signing artificially inflates the first months' turnover, then collapses it at the end. Percentage-of-completion instead spreads revenue and result at the project's real pace — provided reliable time tracking is in place.

The second reflex to acquire is the onerous-contract provision. A fixed-price project that goes off track must be fully provided for as soon as the loss is foreseeable: it is an accounting requirement, not an option. At Hayot Expertise, we set up per-project management for IT services firms, paired with a tool such as Pennylane, linking time tracking, completion, margin and provisions. For growing firms, an outsourced finance function provides this framework.

Hayot Expertise advice. Put three pillars in place: per-project time tracking (which serves completion, accrued income and the R&D credit), percentage-of-completion revenue recognition for fixed-price work, and a cost-at-completion calculation at each year-end to provide for loss-making contracts. This discipline gives a true and fair view of the result and avoids end-of-project surprises.