What Are Major Customer Disclosure Requirements?
Understand the accounting rules for disclosing revenue concentration. This key disclosure informs investors about risk while protecting business confidentiality.
An over-reliance on a single customer can introduce risk. To ensure financial statement users are aware of this, U.S. Generally Accepted Accounting Principles (GAAP) include major customer disclosure requirements. These rules mandate that a company report when a significant portion of its revenue comes from one source. This provides transparency to investors, lenders, and other stakeholders about revenue concentration, allowing them to assess the potential impact on the company’s financial stability.
Identifying a Major Customer
A company must perform a specific calculation each reporting period to determine if it has a major customer. The guideline, found within Accounting Standards Codification (ASC) 275, establishes a clear threshold. A customer is considered “major” if it accounts for 10% or more of the company’s total revenues for the period.
For example, if a business reports $2 million in total revenue for the year, any single customer that generated $200,000 or more of that revenue meets the definition. This test must be performed for each customer individually. The rules also specify how to treat government entities. All agencies of a single government are to be viewed as a single customer for this test.
Required Disclosure Information
Once a major customer is identified, the company must gather specific information for disclosure. The primary requirement is to state the fact that a concentration of revenue exists. The company must also disclose the total amount of revenues from all customers that meet the major customer criteria, but it does not need to report the revenue from each one separately.
A company is not required to disclose the name of the major customer, which is a protection of the reporting company’s confidential business relationships. If the company operates in different business segments, it must also disclose which segment or segments are generating the revenue from the major customer(s).
Presenting the Disclosure in Financial Statements
The information about major customers is presented within the notes to the financial statements. These notes are an integral part of the financial reporting package, providing context and detail. The disclosure is found in a section labeled “Major Customers,” “Concentrations of Credit Risk,” or a more general heading like “Risks and Uncertainties.”
The note itself is a brief, factual statement. A typical disclosure might read: “The Company derived approximately 35% of its total revenues from two major customers during the year ended December 31, 2024. One customer accounted for approximately 20% of revenues and the other accounted for approximately 15% of revenues.” If applicable, it would continue by identifying the business segment, for example: “These revenues were attributable to the Company’s Commercial Services segment.”
The disclosure is required only for the most recent period presented in the financial statements, allowing investors to assess the company’s near-term financial outlook.