Two Ways of Counting Nonprofit Gifts

How to count nonprofit gifts.

Working in a nonprofit environment is a lot like working in a public or private company: you have to work hard to make a difference, you have to make sure your customers are happy, and you have to always keep an eye on the bottom line.  But when it comes to finances, the two types of organizations can differ wildly.  Sure, most larger nonprofit organizations are like private companies in how they run their accounting departments and keep their financial records, but nonprofits have the added responsibility of tracking and recognizing giving from their donors.

There are two general ways you can count and total up gifts to a fundraising organization: you can count the total funds Received or you can count the total funds someone has Committed to your organization.

Let’s be clear: we’re not talking about how your institution’s accounting department manages its own books, though it’s helpful to understand the choices. A nonprofit’s finance department will use either the cash or accrual accounting methods, depending upon how large and sophisticated your organization is.

Before we go any further we first need to define some very specific terms that are often mixed up and even used interchangeably by people who are new to nonprofit fundraising.

Nonprofit Gift Types

How your finance department works is not necessarily relevant because most nonprofit organizations keep track of their fundraising progress in a slightly different way than the accounting department might. A fundraising department is often only concerned with money raised from donors, and usually less concerned with the actual spending of the money.

Money received from donors are called donations and all donations essentially fall into three possible categories: Gifts, Pledges, and Payments.

Let’s look at each:

A gift is an immediate transfer of funds or wealth. A donor gives your organization a check or a credit card or even shares of stock and your organization immediately owns that donation. That transfer of wealth from the donor to your organization is an outright gift.

A pledge is a promise to transfer fund or something of value in the future. A donor may agree to give your nonprofit $10,000 and pay it to you in monthly installments of $1,000. You may not receive anything at the present time, but your organization can look forward to receiving those funds at a later time.

A payment is the transfer of funds or wealth made to fulfill a pledge. When that donor from above sends you that first monthly $1,000 installment check the money you receive is a payment on the promise that was made.

A quick note: The word “gift” is often used as generic term for anything a nonprofit organization receives. I like to actually use the phrase “outright gift” whenever I’m speaking to people about an immediate transfer of funds just to be clear. I’ll do my best to describe the transactions as “donations” and only use the word gift as a specific term.

Most nonprofit database and gift counting software will have many other “types” of transaction such as Matching Gifts, Bequests, Gifts-in-Kind and many others. These are all essentially different types of gifts, pledges or payments with a little more complexity behind them.

Also be careful not to confuse the “method of payment” with the actual type of gift you’re receiving. An outright gift can be paid by check, credit card, wire transfer, envelope of cash or any of a dozen other methods. The same is true of a payment. The “how” of someone is donating to your organization is separate from the type of donations they are making.

Now that we know the three basic types of donations we can look at how to count them.

How To Count Gifts

Just like the cash and accrual accounting methods, there are two similar ways to count nonprofit giving.  There is the received method and the committed method.  Here’s a quick scenario that will help us understand each counting method:

John Doe gives your organization $500 in cash. (Gift)

John then promises another $1,000 to be paid later in the year.  (Pledge)

John makes one $100 monthly donation to fulfill his promise so far. (Payment)

If those three transactions are all John has given your organization this year, what is John Doe’s annual total to your nonprofit? Remember, there are two ways to count this. Let’s look at both:

Received Method: In this scenario you only total up the amount of money or funds that a donor has actually given you.  To create a received total you would add up all the outright gifts as well as all the payments, but not the pledges.  In our scenario above our constituent’s donation total for the year would be $600.  It would be outright gifts ($500) + payments ($100) which equals $600.

Received Donations = Gifts + Pledge Payments

Committed Method: In this scenario you total up the amount of money or gifts you expect to receive from the donor, regardless of whether or not payments have been made.  For a committed number you add up the outright gifts and the pledges, but not the payments.  In our scenario above that means that John Doe has an annual committed total of $1,500.  That’s the result of adding all his outright gifts ($500) to his pledges ($1,000). 

Committed Donations = Gifts + Pledges

Which Nonprofit Counting Method Should You Use?

You will, almost definitely, be asked to use both counting methods, depending on the scenario. Many nonprofit reporting surveys and publications will dictate which method you’ll use for their report. Most will prefer committed but some will also request that you report on the funds you’ve received. The good news is that most fundraising databases can produce these totals fairly easily.

The received method is technically more accurate if you want to know how much money you have to spend, but it is often the smaller number when you’re looking at a specific fundraising period of time.

Most nonprofit organizations use the committed method for external publication and campaign communications.  The committed number is often (but not always) larger, though there’s no guarantee that every pledge will be completely paid.

If you want to see how “valuable” someone is to your organization I would recommend you look at their total committed value.  If you want to see how much wealth your organization has been given so far, I would look at the received value.

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