Finance and clinical operations often disagree about clinical trial accruals because they are measuring different things. Finance recognizes expense as work is performed. Clinical operations tends to track invoices, milestones and budgets. CRO invoices frequently lag the work or follow a milestone schedule. The answer is a shared, activity-based view of the study that both teams trust.
Why do accruals and invoices differ?
Milestone billing rarely matches the pace of work. Pass-through costs, especially site payments, may be invoiced quarterly or later. Prepayments must be drawn down over time. And unit-based contracts require someone to count the units actually completed. The result is a gap between what has been invoiced and what has been earned, and that gap is the accrual.
What is an activity-based accrual model?
It tracks the units of work completed in each period, such as sites activated, participant visits, monitoring visits and data management activities, and multiplies them by contracted unit prices to estimate expense. Comparing that estimate with invoices received shows whether the sponsor has an accrued liability or a prepaid balance. Pass-through costs are estimated the same way, from activity drivers.
What data do you need from the CRO?
A monthly report of completed activities by budget line, aligned to contract units. Pass-through actuals and estimates. An updated forecast of remaining work. Many CROs provide a monthly work-in-progress estimate. The contract should require this reporting, in a consistent format and on a schedule that fits the sponsor's financial close.
How do you align finance and clinical operations?
Hold a short monthly accrual meeting. Clinical operations validates the activity data and explains what is happening in the study. Finance owns the accounting and the model. Both review variances and agree on explanations before the books close. Over time, the model becomes a forecasting tool as well as an accounting one.
Why does it matter so much?
Clinical trial accruals are often among the most significant estimates in a biotech's financial statements, and auditors examine them closely. Inaccurate accruals distort runway projections, surprise boards and investors, and can lead to restatements. Getting them right builds credibility far beyond the finance team.
What are the most common sources of error?
Assuming milestone invoices reflect work performed. Ignoring pass-through costs until invoices arrive. Using contract budgets rather than current forecasts. Failing to update the model after a change order. And relying on a single person's spreadsheet that nobody else understands.
How does this connect to forecasting?
The same activity drivers that produce an accurate accrual also produce a better forecast. When finance can see enrollment pace, site activation and visit completion, it can project cash needs with confidence, which matters a great deal to a company managing its runway.
Keep reading: Pass-Through Costs: The Budget Line Nobody Owns
