Clinical trial financial accruals often seem like a mystery to those outside of finance. But understanding how these accruals work is critical for clinical professionals who manage study operations and budgets. Whether you’re communicating with finance teams or overseeing vendor activities, learning the fundamentals of clinical trial financial accruals will help you run more efficient, compliant trials.
What are Financial Accruals?
In simple terms, financial accruals refer to the accounting practice of recognizing expenses when they are incurred, not when the cash is actually paid out. In a clinical trial context, this means tracking the services and activities that have occurred in a given month (e.g., patient visits, lab tests, CRO activity) and estimating their cost, even if the vendor hasn’t sent an invoice yet.
These estimates are critical for proper monthly and quarterly financial reporting, especially in organizations that follow Generally Accepted Accounting Principles (GAAP). For example, if an investigator site completes five patient visits in April, the cost of those visits must be accrued in April, even if the invoice comes in May.
Why Accruals Matter in Clinical Trials
Accurate Financial Reporting: Investors, executives, and auditors expect financial statements to reflect the company’s current liabilities. Underestimating or overestimating trial costs can result in misleading reports, which can affect business decisions and even stock performance.
Improved Budget Management: Trial costs are often spread out over months or even years. Accruals allow sponsors to track spending against the budget more precisely, flagging overages or cost-saving opportunities early on.
Regulatory and Audit Readiness: Accurate and well-documented accruals help ensure transparency and readiness for internal audits or regulatory inspections. They also show that the organization maintains a disciplined approach to financial management.
Common Challenges in Accrual Estimation
Fragmented Data: Costs are often spread across multiple vendors, CROs, labs, imaging services, and investigator sites, making it difficult to get a full picture without robust tracking systems.
Communication Gaps: Clinical teams may not always understand the level of detail finance teams need, leading to late or inaccurate reporting. Likewise, finance professionals may lack insight into clinical timelines and workflows.
Inconsistent Methodologies: Some companies estimate based on invoices, while others use actual service logs or site forecasts. Without standardization, results can vary significantly from month to month.
Best Practices for Clinical Teams
Build Cross-Functional Communication: Set up recurring check-ins between clinical operations and finance during study start-up and ongoing execution. This helps both sides align on expectations, timelines, and deliverables.
Maintain Clean and Consistent Data: Ensure that all vendor contracts clearly define cost-per-activity and invoicing terms. Use centralized systems to track patient activity and vendor performance in real time.
Invest in Training and Tools: Educate clinical project managers on the basics of accruals. Equip them with templates or software that help simplify the tracking and forecasting process.
Need expert support to manage your accruals?
When clinical teams understand how clinical trial financial accruals work, they become better partners to finance teams, reduce budget errors, and strengthen the operational backbone of research. Having supported 1,500+ organizations, Danforth Advisors specializes in financial operations for life science companies. From accrual tracking to vendor forecasting, our experts can help you streamline your process and improve accuracy. Contact us today.