Is your organization about to run its first capital campaign? Expecting to receive numerous donations and pledges? Here are some things you should keep in mind when it comes to pledges receivable or “promises to give”.

What is a Promise to Give?

As part of an organization’s fundraising efforts, they may receive one-time donations OR pledges to contribute a specific amount over a defined period of time. These “pledges receivable” sometimes referred to as “promises to give” or are legally binding commitments to provide support in the future by a donor to your organization.

When it comes to promises to give, it is important that the organization understand the commitment and determine if the donor is expecting to make a one-time donation or multiple donations over a period of time. Effective communication with donors is crucial to ensure both parties understand the terms of this promise to give.

Recording: Is a promise to give conditional or unconditional?

Generally, when an organization receives a promise to give, they would record the full amount of the promise to give as pledges receivable and corresponding restricted revenue (due to time or purpose).

However, it is important to understand the difference between conditional and unconditional as it impacts the recording of pledges receivable.

Unconditional Pledges Receivable:

1. These are commitments made by the donor without any specific conditions attached.
2. The organization can recognize the unconditional pledge receivable and revenue immediately upon receiving the promise to give.

Conditional Pledges Receivable:

1. Conditional pledges are commitments that come with specific conditions that must be met by the organization to qualify for receipt of the funds.
2. The conditions could relate to a specific event, activity or outcome that the organization must achieve before it can recognize the pledge as revenue.
3. Until the conditions are met, the organization only discloses the existence of conditional pledges receivable but does not recognize the revenue.

How can you effectively manage and comply with promises to give?

Before kicking off your capital campaign, do you have the following in place to ensure proper management and compliance of promises to give?

1. Understand these commitments represent binding agreements and the organization is legally entitled to expect the pledged funds.
2. Develop a detailed pledge agreement which includes the pledge amount, payment schedule, purpose of the donation and any conditions or restrictions.
3. Clearly communicate with the donor the terms of the agreement.
4. Establish a clear payment schedule with the donor specifying time and amount of each installment.
5. Acknowledge the donor’s commitment and express appreciation for their support.
6. Maintain accurate and detailed records of multi-year pledges to track new pledges, past pledges and current and late payments.

Example:

Picture this: Your organization received its first pledge for their capital campaign stating that the donor commits to $1,000,000 over 5 years, $200,000 for each year with a check for the first $200,000. The Organization would record the full $1,000,000 as restricted revenue, $800,000 as a pledge receivable and $200,000 cash. The entire $1,000,000 would be restricted for the purpose of the capital campaign and funds would be released from restriction as expenses are incurred.

However, if your organization received a pledge for their capital campaign stating that the donor commits to $10,000,000 over 5 years, $2,000,000 for each year, contingent on getting matching funds of $10,000,000, the pledge would not be recorded until the matching funds were received and the condition is met.

Don’t run into these common issues—check out our blog, Did Your Nonprofit Receive a Pledge? Avoid these Common Issues

Questions? Wondering if you’re recording properly? Contact us.