What Is Cycle Billing?
Cycle billing is the practice of invoicing different customers based on a schedule rather than billing all accounts at once on a single date.Statements are prepared and sent out at varying intervals, spreading out the company’s workload and making it easier for it to keep track of who has been billed.
Key Takeaways
- Cycle billing is a style of account management that enables companies to bill customers on different days of the month, rather than all on the same day.
- The practice allows the company to prepare and distribute statements on different days, versus having a glut of invoices that must be sent at the same time.
- Cycle billing enables companies to create a customized schedule that allows for easier tracking as to which customers have been billed, have paid, or have not paid.
- Strategies include invoicing for the largest amounts owed first, then the next biggest, and so forth; billing alphabetically; or billing based on the day of the month the customer's account was opened, or the customer chose to be billed.
- The lengths of billing cycles can vary customer to customer, based on what cash flow the company needs and the creditworthiness of a customer.
How Cycle Billing Works
Cycle billing is an invoicing strategy that involves billing a designated percentage of customers each day, as opposed to billing them all together, perhaps at the end of the month.
Companies that apply this technique may do so in a number of different ways. Methods include sending out invoices for the largest amounts outstanding on the first of each month, followed by the smaller billing amount on the second of every month or later.Customers may also be billed based on alphabetical order, the day of the month the account was opened, or the date the customer chose to be billed when establishing an account.
The date at which the cycle begins may depend on the type of service being offered and the customer’s needs. For example, a cable TV provider could opt to set a customer’s billing cycle to align with when that customer began service.
Cycle billing varies from the common practice of issuing all invoices on the same date. Single-date billing is typically used by businesses that have a common due date for services or rent. For example, an apartment complex may send a bill for rent on the first of every month, regardless of when tenants signed their individualleases.
With cycle billing, a company may bill on several days or every day of the month or over a longer period.
Advantages and Disadvantages of Cycle Billing
Cycle billing enables the supplier to flatten the volume of billing work to be completed on any given day, develop a customized schedule, and more easily track which customers have and have not yet been billed. Adopting this particular model may result in decreasedselling, general, and administrative expense (SG&A)costs since tracking the number of outgoing invoices becomes simplified and less prone to error.
On the flip side, the cycle billing technique may have a negative impact on cash flows as some invoices might be delayed several days from when they would normally be issued. In addition, a smaller vendor that struggles to keep track of invoices and money owed may find itself overwhelmed by having to keep up with different statements corresponding to different days.
Special Considerations
Businesses using cycle billing may establish different lengths of billing cycles. Vendors might shorten or lengthen the period of time between billings to manage cash flows or to adjust to a change in the creditworthiness of a customer.
For example, a wholesaler to a supermarket chain may need to accelerate receipt of cash flows because the company it leases delivery trucks from has tightened its billing cycle.Another example is a situation where a consumer electronic goods wholesaler has a late-paying retail chain customer. Because this account is riskier, the wholesaler could decide to reduce the billing cycle from four weeks to three weeks.
A billing cycle can also extend past a month, such as with a large corporate customer requesting a 45-day billing cycle for certain services. If the creditworthiness of this customer is sound, the vendor may agree to the longer cycle.
FAQs
Cycle billing is a style of account management that enables companies to bill customers on different days of the month, rather than all on the same day. The practice allows the company to prepare and distribute statements on different days, versus having a glut of invoices that must be sent at the same time.
What is billing cycle? ›
A billing cycle, also referred to as a billing period, is the interval of time between billing statements. Although billing cycles are most often set at one month, they may vary in length depending on the product/service rendered. Typically, the billing cycle lasts anywhere between 20 and 45 days.
What is an example of a cycle billing? ›
Example of Billing Cycle
A TV company can start the billing cycle on the first day of the month and end on the 30th day. TV providers can set from the 15th of the month to the 15th of the next month. Billing cycles vary in length from 20 to 45 days, depending on the credit card issuer or service provider.
How does a 30 day billing cycle work? ›
A credit card's billing cycle is generally 28 to 31 days long. The transactions during the billing cycle are added to your previous balance (if any) and determine your statement balance at the end of each cycle. Your bill will then be due a few weeks later, and a new billing cycle starts right away.
What is the most common billing cycle? ›
Billing cycles are most often monthly, but depending on the industry, may vary between 3-6 weeks. Understanding when a billing cycle begins and ends can help both businesses and consumers.
What are the key steps in the billing cycle? ›
A billing cycle is the process of generating, sending, and collecting invoices for the goods or services provided by a business. A successful billing cycle ensures timely and accurate payments, minimizes errors and disputes, and improves customer satisfaction and retention.
What is the advantage of cycle billing? ›
Cycle billing enables the supplier to flatten the volume of billing work to be completed on any given day, develop a customized schedule, and more easily track which customers have and have not yet been billed.
Why is billing cycle important? ›
Billing cycles guide companies on when to charge customers, and they help businesses estimate how much revenue they will receive. Billing cycles help customers regulate their expectations regarding the payment timetables so they can budget their money responsibly.
Are billing cycles monthly? ›
A billing cycle, also referred to as a billing period, is the interval of time between billing statements. Although billing cycles are most often set at one month, they may vary in length depending on the product/service rendered. Typically, the billing cycle lasts anywhere between 20 and 45 days.
How does billing work? ›
Billing refers to the process of invoicing customers or clients for goods or services provided. It involves sending a bill or invoice that outlines the charges and payment terms. The purpose of billing is to request payment for the products or services rendered and to ensure timely payment from customers or clients.
The first cycle lasts about a month from when you open your credit card, and the account statement issued at the end of this first billing period provides the due date, the balance owed, and the minimum payment due. If you don't pay at least the minimum payment by the due date, your payment will be considered late.
Should I pay before billing cycle? ›
If you make an early payment before your billing cycle ends, you may be able to reduce your interest charges, even if you don't pay off your entire balance. In fact, every little bit you're able to pay toward a balance you're carrying can help you chip away at what you owe.
What is the difference between billing cycle and due date? ›
The closing date is the last day in a billing cycle, and the due date is when a payment is due on your credit card, usually about one month after the closing date. As an example, if your closing date is June 5, 2025, your credit card statement may arrive on June 8, 2025.
How does a 28 day billing cycle work? ›
With the 28-day billing cycle, there's a total of 13 billing cycles every year, rather than 12 which is used for monthly billing cycles. 28-day billing helps owners get paid per service, easily prorate customers on a weekly basis, and regulate income which is why it is the industry's best practice.
How do I know when my billing cycle ends? ›
You can find your credit card billing cycle listed on your monthly statement. You'll notice the start and end dates for your billing period are typically located on the first page of your statement, near the balance. Your card issuer may list the number of days in your billing cycle, or you'll have to do some counting.
Is a billing cycle always 30 days? ›
No, but the payment due date for your credit card must be the same day of the month for each billing cycle. A bank may adjust the due date from time to time for certain reasons, provided that the new due date will be the same date each month on an ongoing basis.
What does 2 billing cycles mean? ›
Double-cycle billing is a method for calculating credit card interest in which the interest is applied to the average of the prior two months' outstanding balance.
