Pledges and recurring gifts are often intertwined with one another. In fact, not so long ago, both objects even occupied the same real estate right here in Virtuous. This is because both represent long-term (or potentially long-term) commitments from your donors. However, these two commitments are different, and require different accounting and tracking practices, so it's good to know the difference between the two.
When is a Pledge a Pledge?
Let's start with pledges first. A pledge occurs when a donor makes a commitment to donate a specific, total sum. For example, let's say that you are running a capital campaign to build a new facility for your organization. You have a small major donor event, and at that event, one of your donors agrees to give $75,000 to your campaign. At that event, you are not likely to ask for an immediate check. Instead, you would note this commitment as a pledge. After following up with the donor, maybe they agree to give you that amount in three equal installments of $25,000 each over the next three years. Now, you have an annual pledge of $75,000, with an Expected Fulfillment Date three years in the future.
Creating this as a pledge allows you to track the total $75,000 commitment, and the status of each annual payment. If your organization tracks pledges as receivable, then it's crucial to create this pledge so you can "book" the full $75,000 up front.
So When do I Create a Recurring Gift?
Recurring gifts also involve agreeing to a payment schedule with your donor, but they differ from pledges in two important ways:
- First, a recurring gift does not involve a commitment to any specific total or sum. Instead, a recurring gift simply represents an intent on the part of your donor to give a certain amount each month, or quarter, or whatever interval they choose. The total amount is undefined, only the payment amount is set.
- Since these gifts do not involve a commitment of a specific sum, their duration is also undefined. A recurring gift may last for years, or only weeks — a donor may end their recurring gift whenever they choose. Because of this, recurring gifts cannot (and should not) be forecast with the same degree of accuracy available for pledges. Even for organizations tracking pledges as receivable, recurring gifts should only be tracked on a cash basis.
Recurring gifts are very common for organizations that track sponsorships, since these typically involve a monthly commitment. Most recurring gifts are processed automatically as credit card or ACH/EFT transactions, but there are some donors who prefer to give monthly via a check or other means as well. Virtuous Giving users can have recurring gifts created automatically as part of gift processing, whenever a donor chooses to make their gift recur.