Extended Warranties: Should Your HVAC Company Sell Them?

5 min read · Revenue

The short answer

Selling extended warranties can add margin to an install and give the customer peace of mind, but the arrangement matters. If you are selling a third-party warranty product, it is a commission-style revenue line with limited ongoing obligation. If you are self-warranting beyond the manufacturer's coverage, you are taking on real future liability that belongs on your books as more than just a one-time sale. Knowing which model you are running changes how you price it and how you record it.

Key takeaways

• Third-party extended warranties are typically a commission sale with limited ongoing liability.
• Self-warranting beyond the manufacturer's coverage creates a real future obligation, not just a sale.
• The two models should be tracked and priced very differently in your books.
• Read the terms of any third-party warranty product closely before recommending it to customers.

Two very different arrangements

An extended warranty sold through a third-party provider usually works like a referral or commission sale: you sell the coverage, the provider handles claims, and your obligation ends once the sale is made and reported correctly. Self-warranting, promising your own extended coverage beyond what the manufacturer provides, is a different animal entirely. You are the one on the hook for parts and labor years down the road, which is a real financial obligation, not a one-time transaction.

Why the distinction matters for your books

A commission-based third-party warranty sale is recognized as revenue when the sale happens, similar to any other product sale. A self-warranted obligation is closer to a liability you are carrying forward, since you owe future service regardless of whether you have set money aside for it. Treating a self-warranty program like simple upfront revenue, without reserving anything for future claims, can leave you exposed years later when the claims start coming in.

What to weigh before offering either one

If you go the third-party route, read the provider's terms closely, know what is actually covered and what your obligation is if a customer disputes a denied claim. If you consider self-warranting, talk to your bookkeeper and possibly your insurance agent about how to responsibly account for and reserve against that future liability, rather than treating it as free money today.

Frequently asked questions

Is a third-party extended warranty risky for my business?

Generally lower risk than self-warranting, since the provider handles the ongoing coverage obligation, but read the terms to understand your role if a claim is disputed.

Should I set aside money if I self-warranty installs?

Yes. Self-warranting creates a future obligation, and reserving against it protects you from being caught short when claims come due.

Does selling warranties count as taxable revenue right away?

Commission-style third-party sales are typically recognized as revenue at the time of sale. Confirm treatment for your specific arrangement with your accountant.

Know what you're really selling

911 Bookkeepers helps HVAC contractors track warranty revenue and future obligations correctly in Xero. Book a free books review at https://911bookkeepers.com or call (225) 274-6576.

Jeremy Brewer is the founder of 911 Bookkeepers LLC in Baton Rouge, Louisiana. He came up through the HVAC trade and works as a licensed paramedic in EMS. He is a Xero Certified Advisor. 911 Bookkeepers is built for the trades.