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Current loctn: salesforce > data structure > npsp pledges > NPSP payments

Salesforce Data Structure - NPSP Payments

Overview

The NPSP Payments object provides records that track individual payments related to a Salseforce Opportunity

Key Payment Fields:

Use of NPSP Payment records is intended to separate tracking of fundraising efforts and fund collection data, providing

However, some common NPSP use practices result conflicts with attainment of these benefits. This web page outlines practices to attain these benefits in the most complete way.

Recommendations   Discussion   References

Recommendations

  1. One-time donations with only a single payment are represented using an Opportunity record with a single linked Payment record,
  2. Donations such as pledges which include multiple payments and which are closed-ended are represented by:
  3. Open ended payment arrangements (Recurring donations) are represented using:
  4. All storage of characteristics of collection activities (actual payment dates, write offs, etc) should be restricted to use of fields on Payment records.
  5. In general, no changes to fields on the Opportunity object should be made after the pursuit of a donation by fundraising staff is completed. (That would typically be indicated by an Opportunity record that is closed.)

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Discussion

Background For Storage of Pledges using Opportunities and Linked Payments

The NPSP Recurring Donations package (released in June 2009) and represented the first NPSP attempt to provide data structures sutiable for storage of multi-installment pledges. The NPSP Payments Package was released in late 2011 to add new capacities to NPSP.

In late 2011, SF employee Steve Anderson provided a blog post explaining the motivation behind the development and release of that package ( Nonprofit Starter Pack and Money>).

Anderson had been heavily involved in work to make SF more suitable for nonprofits during his earlier work at Seattle's One/NW, was involved in conceptualization and programming work for the very early Non Profit Edition of SF, and (as a later Salesforce employee) was heavily involved with early development of the more refined Non Profit Starter Pack (NPSP).

Key excerpts from Anderson's article (these are presented in the same order as in Anderson's post, but with some intervening text omitted to provide brevity here):

Salesforce.com has a database object called Opportunity that represents revenue and potential future revenue. It was created by the company to handle sales deals when Salesforce.com was limited to Sales and Marketing. Now that the platform is so much more flexible, the Opportunity object serves well as any kind of revenue - gifts, grants, memberships, ticket sales, etc

There are some limitations with the way the Nonprofit Starter Pack supports money today. The main problems have to do with a lack of support for cash in addition to revenue

Revenue tracking and forecasting is critical to all nonprofits. Annual revenue must be reported to the IRS, and any business that doesn't know its revenue picture can't effectively plan for the future. This is easily done by reporting on Opportunities, and most nonprofits using Salesforce.com have already figured that out.

Nonprofit accounting (and accounting in general) is more complex than simply recording revenue, though. We need to support cash tracking in addition to revenue. This is because nonprofits can report revenue without receiving any money. When that happens from a donor or a grant maker, we often call it a pledge. The donor commits to giving to the organization, and may identify a payment schedule at that time. Let's look at an example case to get into the specifics.

The nonprofit Friends of Tiny Creek (FOTC) wins a $1 million grant from a foundation. At the time of the award,they are promised a check for $250,000 and are told to expect 3 additional payments of $250,000 over the next 3 years. How should this be recorded on the financial statements?

FOTC records $1 million in revenue from the foundation. This is revenue in the fiscal year in which the grant was received. Because the cash isn't received at the time the revenue is recorded, it can't be spent yet. While the funder can put other restrictions on the gift, we will assume that this one hasn't, and the money will be available when the cash payments are received.

So this $1 million commitment is recorded as a credit (increase) to revenue on the income statement and a debit to assets on the balance sheet.

One week later the $250,000 check comes in as promised. $250,000 is now cash that can be spent. On the balance sheet, cash is debited by $250,000 and assets receivable is credited by the same amount. The effect of this seemingly backwards transaction (there is a reason I'm not an accountant) is that $250,000 of the grant funds are now available for use and $750,000 is still to be received.

The initial pledge and the resulting cash are related, but come in at very different times. And in this case you can see how the date the revenue is recorded is very different from when FOTC can actually spend the money to support it's mission efforts. If FOTC isn't paying attention to it's cash picture, they're going to have a hard time planning and delivering.

The coming upgrades to the Nonprofit Starter Pack will allow for cash reporting, write-offs of revenue, and facilitate collections of promised payments. Upcoming improvements to Recurring Donations will make it easier to handle recurring donations that are open ended.

Points to note:

  1. Anderson appears to be focusing heavily on the needs of organizations that use accrual-basis accounting practices. (Although I think the same approaches also make sense for nonprofits using cash-basis accounting.) His focus on reporting revenue at the time a donation is promised is common within accrual-basis accounting.

    Cash-basis accounting instead typically reports revenue at the time the actual installment payments are received.

    It's my understanding that accrual accounting is much more common with nonprofits, especially larger nonprofits and those that operate internationally (due to needs for standards compliance).

  2. Anderson clearly indicates desirable use of:

Implications of Storing Pledges as Opportunities with Linked Payments

The suggested NPSP Payments approach is designed to separate revenue and cash. But that separation of revenue and cash also inherently provides additional separations:

Consider what happens when all collection data such as scheduled payment date vs actual payment date, paid status and write off status is tracked on Payment records. This effectively changes the use of the Opportunity record. The Opportunity record now represents data that mainly documents the development staff's record of their efforts to obtain a donation commitment.

Implications:

  1. CloseDate represents the date on which development staff halts their work in attaining a donation.
  2. Opportunity Stage represents the status of the development staff effort at the time they decided to halt work to obtain that donation. If development staff closed their effort because they won the donation, the Stage field would be set to a Closed/Won status. If the development staff closed their effort because they lost the donation opportunity, they would set the value to a Closed/Lost status.
  3. Opportunity Amount then represents the value of the donation that the development staff was pursuing.
  4. If pledge installments are tardy, changes on the Payment record representing those installments are edited to set an appropriate value of the Payment actual payment date field. The Opportunity Close Date would remain unchanged. It still represents the date when development staff decided to close their effort at obtaining the donation. And for organizations using accrual-based accounting, this date also indicates when they will report the income for tax purposes.
  5. If a donor cancels installments, or if the organization decides they will never receive any installment, the Payment write off field is checked.

    No changes are made to the Opportunity record. Opportunity fields like CloseDate, Stage and Amount still indicate the status of the donation at the time development staff closed their effort to obtain the donation. The Opportunity still indicates the donor's intent from that time, which is useful information.

    Opportunity fields that rollup linked Payments indicate collection outcomes - the amount of the write-offs, payments received and data about timeliness of the donor's payments. New rollups can be placed on the Account object to provided Account-level summaries of these values. Those Opportunity fields can also be displayed on Opportunity related lists within Account and Contact page layouts to give a complete picture of the donors promises and reliability in fulfilling their promises.

The resulting separation of development staff results from collection results might be very useful. For instance:

  1. Development staff may want to focus a new fundraising effort on donors that have reliably fulfilled their donation promises. If the account record shows both the donor's history of promises and reliability, this fundraising effort can be optimized by targetting only major donors who have reliably fulfilled their promises.
  2. The organization might undertake an analysis of Development Staff effectiveness to determine whether the development systems ahouls be changed. Examination of collection history/reliability for donation agreements closed by the development staff may suggest additional vetting of donors should be a standard practice.

    It might be useful to use different Opportunity.Stage values to represent pledges from reliable and unreliable donors:

Needed Changes to Common NPSP Practices When Using Opp/Pmt Storage of Pledges

Some NPSP how to documents indicate that Opportunities representing promised pledges should have the Opportunity Stage value of Pledged set. Unfortunately, the NPSP-standard Pledged picklist value is defined with a Type of Open. For example, the web page NPSP: Manage Multiple-Payment Donations suggests this approach - which I now feel is flawed for use within accrual-basis accounting systems unless the Type designation of the Pledged picklist value is changed.

Problems result:

  1. Account and Contact rollups provided by NPSP to summarize Opportunity.Amount values do not include Opportunities marked with the NPSP standard Pledged Stage value.

    These Opportunites are excluded because the Pledged value is defined with Type Open. The rollups only summarize Opportunities assigned Stage values of Type of Closed/Won. An article from Kell Partners NPSP Opportunities and Payments 101), ) highlights the need to use different Opportunity Stage values to address this problem.

  2. The Opportunities marked with Pledged values do not accurately represent the status of the development staff effort at the time they halted their work. Pledged would seem to imply committed, but the Pledged value is defined as Type Open, and the actual implication is much different.
  3. The Opportunity Stage value Pledged might be changed to a value of Closed/Won at the time when all installments are finally received. But this breaks the separation of revenue and cash that was the original goal of the NPSP Payments package.

    The desirable separation of revenue and cash information is best maintained by restricting collection data to storage on Payment records. If the Opportunity Stage value is being changed later in response to collection results, you've violated the separation that was intended. And the full benefits intended by the NPSP Payments package are not obtained.

This suggested use of the Opportunity Pledged Stage value seems like a holdover from earlier NPSP practices which do not make use of the NPSP Payment records in the suggested fashion.

The practice might still be desirable for organization that are not using NPSP Payment records, but is at odds with use of NPSP Payment records.

Unfortunately, it seems that this mismatch of NPSP-delivered stage values with use of NPSP Payment records is seldom or never mentioned in NPSP documentation or how to articles. One key exception is an article from Kell Partners ( NPSP Opportunities and Payments 101), ). However, the Kell article only mentions the need for changes in use of Opportunity Stage values as they relate to behavior of Account and Contact rollup fields that summarize Opportunities. No mention of impacts on ability to analyse effectiveness of development staff work is explicitly mentioned.

To realize the full benefits intended with introduction of the NPSP Payments package, a different use is preferable. Either of these approaches would provide the benefits originally intended:

  1. Edit the Opportunity Stage Pledged picklist value. Change the Type setting to Closed/Won.
  2. Create one or more new Opportunity Stage picklist values that indicate the status of the development staff effort more clearly. For instance: value Pledge Promised (with a Type of Closed/Won) and Pledge Not Committed (with a Type of Open). Then disable the Pledged picklist value to avoid any confusion.

It may be useful to consider addition of Apex functions that summarize the Opportunity rollup fields for Payment records for representation on the Contact object. The NPSP batch Apex class OPP_PrimaryContact_Batch might be useful as a starting template, since it peforms a very similar function for Opportunity.Amount values.

Contractual Pledge Agreements

It is occasionally asserted that a pledge-type donation should not be treated as an unconditional pledge suitable for tax reporting at the time the the pledge agreement was established unless there is a formal, contract type written agreement with the donor.

However,

Actual nonprofit practice therefore seems vary widely. Tax reporting of pledges in the year the pledge was established seems common. Required use of formal contract-type documentation for pledges seems to be relatively uncommon.

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References

Links are numbered to allow easier reference during discussions, etc.

Accounting Practices

  1. Accounting Considerations for Non-Profits

    You may need to use the website search function to find this specific page.

  2. Accounting For Pledges Receivable - Capital Campaign

    Question/answer dialgue providing some information about handling of Pledge donations.

  3. Cash vs. Accrual

    Simple discussion of difference between accrual and cash-basis accounting systems.

  4. Cash vs. Accrual Accounting For Non-Profits: Which is Right for Your Organization?

    Simple discussion of difference between accrual and cash-basis accounting systems.

  5. FAS 116

    Brief explanzation of Financial Accounting Standards Board rules that nonprofits are often required to meet..

  6. Pledges Receivable: Explaining the Basics to Your Development Department

    Explains the typical differences betwen accural and cash-basis accounting, with specific mention of how pledges are typically handled under the two systems.

  7. Pledges vs. recurring donations

    Explaingation of typicaly distinctions between pldeges and reucrring donations. From Idealist Consulting

NPSP Usage

  1. Create Payments and Recurring Donations

    Salesforce trailhead page. Please note, this explanation suggested using the Opportunity.Stage value pledge, which differs from the recommednations on the current page.

  2. Nonprofit Starter Pack and Money

    This article provides some basoc explanations of nonprofit accounting principles and of the needs the NPSP Payments package was intended to meet. Especially focuses on frequenty nonprofit needs to record revenue on a date that differs from the actual collection date of the funds promised. Written at a time after the Recurring Donations package had been released, but shortly preceeding release of the newer NPSP Payments package.

  3. NPSP Recurring Donations - Overview and Setup

    Main NPSP document explaining typical entry of recurring donation or pledge donations when using the NPSP Payment object

  4. NPSP: Manage Multiple-Payment Donations

    (From the Power of Us Hub) Recommendations for basic used of NPSP Payments for entering multiple payment donations.

    (I believe an earlier, but relatively recent version of this article specifically linked the Kell Partners page described just below.)

  5. NPSP Opportunities and Payments 101

    (From Kell Partners) Recommendations for more advanced uses of NPSP Payments. Includes more detailed recommendations specific to the needs of organizations using cash-basis and accrual accounting approaches. (Accrual accounting seems to be more common among nonprofits, especially among larger or international nonprofits.) The only changes suggested are a different assignment of Opportuniity.Stage values for Opportunities representing pledges. The details may be important for your organization. Page dated 2017.

    Note especially the sections on

  6. NPSP: Recurring Donations versus Opportunity (Donation) Payments

    Very basic, but does mention (briefly) the main differences in recommended data entry approach for accrual and cash-basis accounting systems.

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