Billing Cycle - Explained
What is a Billing Cycle?
Written by Jason Gordon
Updated at September 15th, 2021
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Table of Contents
What is a Billing Cycle?How does a Billing Cycle Work?Billing Cycle ExamplesAscertaining a Billing Cycles LengthAcademics Research on Billing CycleWhat 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.
Back to: ACCOUNTING, TAX, & REPORTING
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.
Academics Research on Billing Cycle
- The balancedbilling cyclevehicle routing problem, Gror, C., Golden, B., & Wasil, E. (2009). The balanced billing cycle vehicle routing problem.Networks: An International Journal,54(4), 243-254. Utility companies typically send their meter readers out each day of the billing cycle in order to determine each customer's usage for the period. Customer churn requires the utility company to periodically remove some customer locations from its meterreading routes. On the other hand, the addition of new customers and locations requires the utility company to add new stops to the existing routes. A utility that does not adjust its meterreading routes over time can find itself with inefficient routes and, subsequently, higher meterreading costs. Furthermore, the utility can end up with certain billing days that require substantially larger meterreading resources than others. However, remedying this problem is not as simple as it may initially seem. Certain regulatory and customer service considerations can prevent the utility from shifting a customer's billing day by more than a few days in either direction. Thus, the problem of reducing the meterreading costs and balancing the workload can become quite difficult. We describe this Balanced Billing Cycle Vehicle Routing Problem in more detail and develop an algorithm for providing solutions to a slightly simplified version of the problem. Our algorithm uses a combination of heuristics and integer programming via a threestage algorithm. We discuss the performance of our procedure on a realworld data set. 2009 Wiley Periodicals, Inc. NETWORKS, 2009
- Cost benefitanalysisof information systems: A survey of methodologies, Sassone, P. G. (1988, April). Cost benefit analysis of information systems: A survey of methodologies. InACM SIGOIS Bulletin(Vol. 9, No. 2-3, pp. 126-133). ACM.
- Thefinancialimpact of clinic no-show rates in an academic pediatric otolaryngology practice, Huang, Z., Ashraf, M., Gordish-Dressman, H., & Mudd, P. (2017). The financial impact of clinic no-show rates in an academic pediatric otolaryngology practice.American journal of otolaryngology,38(2), 127-129.
- Ananalysisof main and subsidiary credit card holding and spending, Devlin, J. F., Worthington, S., & Gerrard, P. (2007). An analysis of main and subsidiary credit card holding and spending.International Journal of Bank Marketing,25(2), 89-101.The study provides an original insight into an important element of consumer behaviour in the credit card market and also offers guidance for marketing managers responsible for enhancing credit card ownership and usage.
- Process improvement: optimization of a telecommunications billing system, Schouwenaar, M., & Martin, E. (2003, December). Process improvement: optimization of a telecommunications billing system. InProceedings of the 35th conference on Winter simulation: driving innovation (pp. 1843-1847). Winter Simulation Conference. To remain competitive in a turbulent and rapidly evolving market, telecommunication companies have found it necessary to invest large sums of money on the latest technologies and IT infrastructure. These investments have been a serious drain on the financial resources of these companies who are now seeking ways to pare costs and regain their financial footing. This new reality is increasingly forcing companies to focus on improving processes in order to increase profitability. Process simulation is proving to be a useful tool in helping these companies attain higher levels of efficiency in business critical processes by revealing inefficiencies and redesigning processes. This paper seeks to illustrate the method used to obtain substantial savings in the billing system of Telenor (Norway's largest telecom company), through the use of simulation.