What Is a Billing Cycle?
A billing cycle is the time frame from the highest of one billing statement date to the next billing statement date for pieces or products and services and merchandise a company provides to another company or shopper on a recurring basis. Although billing cycles are most often set on a per 30 days basis, they can vary in duration depending on the type of product or service rendered.
Key Takeaways
- A billing cycle refers to the time frame from the highest of one billing statement date to the next billing statement date.
- A billing cycle is traditionally set on a per 30 days basis then again may vary depending on the product or service rendered.
- Billing cycles knowledge companies on when to worth consumers, and they lend a hand corporations estimate how so much profits they’ll download.
- Billing cycles lend a hand consumers regulate their expectations regarding the value timetables so they can budget their money responsibly.
Understanding Billing Cycle
Billing cycles knowledge companies on when to worth consumers while helping inside of departments, identical to accounts receivable devices follow the amount of profits however to be collected.
At the end of every billing cycle, consumers are granted a certain time frame to remit value. This window, known as the grace period, is similar to a moratorium period, which is printed as a decided on period of time by which a lender lets a borrower save you making expenses on a loan.
Examples of Billing Cycles
The date at which the billing cycle begins relies on various parts, along side the type of supplier being presented and the patron’s needs. For example, an apartment complex may issue a bill for rent on the first day of every month, without reference to when tenants signed their specific individual leases. This style of billing cycle can simplify accounting while making it easier for tenants to remember the associated fee due date. Companies may additionally choose to use a rolling billing cycle. For example, a cable TV provider may set a purchaser’s billing cycle to align with the date on which that purchaser first received an indication.
If charges are not remitted in whole thru a due date, they are rolled over to the next billing cycle, which may purpose overdue fees and keenness charges.
Understanding the Length of a Billing Cycle
Although the lengths of billing cycles usually have a tendency to fall in line with business norms, vendors can shorten or build up their specific individual billing cycles in tactics through which lend a hand them upper arrange cash flows or accommodate changes inside the creditworthiness of customers. For example, a wholesaler who distributes produce to a grocery retailer chain might need to spice up up the receipt of cash flows given that company from which it leases provide trucks has tightened its billing cycle for the wholesaler. As another example, imagine a situation where a retail store owner has fallen into the addiction of constructing the occasional overdue value to his supplier. In this situation, the wholesaler may compress the billing cycle from 4 weeks to a couple of weeks, to stay up for for the delinquency. The flexibility of the billing cycle can transfer the other way, too. For example, suppose a large corporate purchaser needs to lengthen the cycle from 30 days to 45 days for software-as-a-service (SaaS). If the creditworthiness of this purchaser is sound, the vendor will maximum continuously agree to do so.
