What is a Billing Cycle?

The billing cycle refers to the time interval from the end date of a billing statement or invoice statement up until the next one for goods or services provided by a company on a constant basis. Most times, billing cycles are set monthly but can differ in length of time depending on the product type or service offered.

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How does a Billing Cycle Work?

A billing cycle directs companies on the best time to bill customers and assist businesses in estimating the revenue amount they would receive. Furthermore, they helped internal departments like the accounts receivable unit, to supervise the revenue amount which had not been collected. Recurring cycles also enlighten customers as to when charges can be expected. At a billing cycle's end, a certain timeframe is given to the customer to make payment. This refers to the grace period that ends on the due date.

Billing Cycle Examples

The start date of a billing cycle is dependent upon the service type being offered, as well as, the needs of the customer. For instance, an apartment complex might send a rent bill on the first day of each month, irrespective of the date the tenants signed their different leases. This billing cycle method can enable easier accounting and also bring about better remembrance of the due date of payment for tenants. Companies decide to utilize a rolling billing cycle sometimes. The cable TV provider might set the billing cycle of a customer to correspond with the time the customer started service.

Ascertaining a Billing Cycles Length

Even though regulated by industry rules related to the billing cycle length, vendors can reduce or increase their billing cycles for cash flow management or for adjusting to changes in a customer's creditworthiness. A fruit and vegetable wholesaler to a supermarket chain, for example, might have to speedup cash flow receipts due to the fact that the company it rents delivery trucks from has tightened their billing cycle for the wholesaler. Additionally, picture a setting where a wholesaler of consumer electronic goods detects issues with a retail customer of chain. The wholesaler might decrease the billing cycle from 4 weeks to 3 weeks for the riskier customer. The billing cycle's flexibility can go sideways as well. For instance, imagine a big corporate customer has to increase the cycle from thirty to forty-five days for software-as-a-service (SaaS). Supposing this customer's creditworthiness is perfect, the vendor would usually oblige to do so.