The difference between pledges and recurring gifts

Many people refer to pledges and recurring gifts interchangeably, but they are actually very different. While both are effective tools to raise revenue for a nonprofit, it’s important to understand the differences so that you can avoid confusion and develop processes to manage each appropriately. We want pledges and recurring gifts to help you raise money for your organization – not raise your stress level!

What is a pledge?

A pledge is a promise to donate a specific sum to an organization. The donor fulfills the pledge at a later date, either with one payment or with multiple payments. For example: If I make a pledge to your organization, I make a commitment to pay a total amount, such as $2,500. I may opt to pay in four installments of $625 or monthly installments of $250. The point is that I’m promising to pay a specified amount over a set period of time.

I can make a conditional pledge, which means my payment is due when certain terms are met. For example, I could pledge $100,000 for a building restoration project, which I commit to paying only after the organization raises $250,000 toward this project.

Or, I can make an unconditional pledge. If I make an unconditional pledge, I’m committing to fulfill my pledge to the organization with no strings attached. The organization does not need to meet any terms in order for me to fulfill my pledge.

What’s a recurring gift?

When I make a recurring gift, I’m not committing to pay a total amount. Instead, I’m just agreeing to pay the same amount, $10/month, for example, for as long as I choose. I could cancel my recurring gift two months from now, or 5 years from now. If and when I cancel it, there’s no obligation to pay a full amount that I’m leaving unfulfilled. I’m making a series of repeated gifts to your organization, which I can continue indefinitely or cease at any time.

Points to consider

As you evaluate whether to implement pledges or recurring gifts at your organization, consider which strategy aligns best with your organization’s fundraising goals and the resources available to you. You’ll need to be ready to devote sufficient administrative and accounting resources, as well as use a donor management system, such as Little Green Light, to track and report on your pledges and recurring gifts. Be mindful of the following:

Pledges:

• Tracking: You need to be able to track and report on the total amount pledged, the payment schedule, the amount paid so far, and the outstanding balance.
• Thanking your donors: Acknowledgment letters should be sent when the pledge is made, with language that explains that the pledge payments are tax deductible when the payment is actually made.
• Sending reminders: Donors may want to receive pledge reminders for installments.
• Delinquent payments: Determine how you will handle delinquent pledge payments. How will you communicate with donors who’ve missed payments, and at what point will you write off the pledge?
• Accounting: For an unconditional pledge, the total amount of the pledge is considered revenue on the day the pledge is made, even though the organization has not yet received any payments toward that pledge. For conditional pledges, the pledge is considered revenue only after the conditions have been met.

For more tips on managing pledges, check out our article on 3 things to consider when entering a pledge into your donor management system.

Recurring gifts:

• Accepting recurring donations: If you don’t already have a way for donors to make recurring gifts online, explore different options such as LGL Forms.
• Thanking your donors: Establish a method for thanking your recurring donors. Will you thank them after each recurring gift, or send an annual statement with a list of all their gifts?
• Managing expired credit cards: Have a system in place to follow-up with recurring donors whose credit cards expire.
• Make a plan: Develop a stewardship plan to ensure your recurring donors feel appreciated and will continue support.
• Accounting: Recurring gifts count as revenue as you receive them.

For more tips on managing a recurring giving program, see our article How to best manage your monthly donors.

As you can see, it’s crucial to communicate with your organization’s accountant to assess whether pledges or recurring gifts are the right choice for your organization’s goals, and to determine appropriate tracking and reporting procedures for each.

Conclusion

Pledges and recurring gifts have the potential to help you raise revenue for your organization. Each requires careful consideration, planning, and oversight. You can use a donor management system like Little Green Light to help you manage pledges, as well as accept and manage recurring donations. With distinct systems in place you can use pledges and recurring gifts to increase revenue for your organization.