Understanding Billing Cycles: Definition, Process, and Duration

May 28, 2024
woman checking calendar billing cycle

If you’ve ever used a credit card, you know the definition of a billing cycle—even if you don’t realize it. 

A billing cycle is the period of time between statements. For example, if you get or send an invoice on the first of each month, you’re on a monthly cycle. 

Understanding how these cycles work helps you track deadlines. It also gives you the insight you need to establish your own billing cycles if you run a business based on subscriptions or recurring charges. 

Here’s how billing periods work and how to decide on a cycle length.

What Is a Billing Period?

Companies that provide recurring or subscription services don’t charge customers for every use. Landlords don’t collect rent every day. Netflix doesn’t charge each time you watch. 

Instead, most companies bill customers at set intervals, like once a month or once a quarter. Some businesses also bill per use or few uses, but this is less common. The time that passes between each bill is called the billing cycle or billing period. 

These cycles give customers predictability. They help everyone involved understand past, present, and future deadlines. Plus, billing cycles are more convenient for recurring services because people know when to expect to pay. And businesses know when they’ll receive the money. 

Billing Cycle Examples 

Here are a few examples of companies that use billing cycles: 

  • Cell Phone Companies. Cell service providers often bill when service begins. If someone started service on the 13th, they’d receive a bill every month on the 13th. This means customers always know when to pay, and the business receives consistent cash because people pay on different days.
  • Landlords. Most leases start on the 1st of every month, so landlords bill monthly throughout the whole term. This cycle length offers consistency for everyone involved. And since many people have monthly budgets, they can easily plan for rent payments. 
  • Insurers. Insurers often give customers a choice between monthly, quarterly, or annual premiums. This customizability makes it easier for customers to decide what’s more important to them: paying once and not worrying about it, or paying lower sums more consistently. 

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Different Types of Billing Cycles

different types of bills cycle

Billing cycles aren’t always monthly. And some aren’t based on time at all. Here are the three most common ways to determine billing periods: 

  • Usage. Usage-based billing cycles work well for inconsistent or variable services. Customers pay only for services they use, regardless of timing. Businesses benefit because they can charge based on the actual work. For example, a taxi service might agree to bill for every 10 rides. Customers would get invoiced after the last ride, which could happen after a week or after a month.
  • Time Spent Using a Service. Businesses bill based on the hours or days it provides a service. For example, a lawyer might send a bill to a client after every 10 hours of work. This approach is ideal when the scope of a customer’s needs isn’t immediately clear or may evolve over time. The business can work as much as necessary to meet the client’s objectives, even if it goes over the original scope. 
  • Fixed Time Periods. Some bills come every week, month, or quarter. This is the approach most companies use. It provides the most predictability since both businesses and customers know when to expect payments. 

The Mechanics of a Billing Cycle

Here’s how a billing cycle works and how to choose one for your business:

  • Decide on Timing. Monthly billing cycles are common, but businesses could choose a different schedule. Decide what works best for the service you offer. 
  • Pick a Start Date. Sometimes, the cycle begins the day a customer begins receiving a service. But the start date could be uniform for every person. For example, a landlord or mortgage lender might always send statements on the 1st of every month.
  • Provide Goods or Services. This might be a month of housing, access to a streaming service, or a software license. It could also be hourly or project-based work from a freelancer.
  • Send a Statement. These are sent at the end of the cycle. They include a description of what services were offered and how much they cost. 
  • Give a Deadline. Customers have a period of time, like a few days or a week, to make payments. This is called the grace period. Late payers may owe a penalty. 
  • Await Payment. Customers can send in their funds via any payment method the business accepts. Common payment methods include checks, ACH transfers, and debit cards.

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What Determines the Length of a Billing Cycle?

billing cycle on calendar

There’s no uniform answer to how long a billing cycle is. Different companies might set different lengths depending on their needs. But here are some of the most common options:

  • Weekly. Weekly billing cycles provide quick access to payments. They can be less convenient because companies might need to send and reconcile invoices more often. And customers have to send in payments more frequently. 
  • Biweekly. Biweekly offers relatively fast access to cash, but with less administrative involvement than weekly billing. Many companies pay hourly employees biweekly. 
  • Monthly. Monthly billing is common for landlords, cell phone providers, and streaming services.
  • Quarterly. Companies may bill customers every three months. This is more common for businesses offering long-term services. For example, pest control companies working on an annual contract might bill for maintenance services quarterly for more consistent income. 
  • Annually. Many businesses only bill once per year. This is common when they provide ongoing services for many years. Auto and home insurance companies often charge annual premiums. 

If you’re a company trying to decide which billing period to use, here are some tips:

  • Think About Your Customers. Do they prefer paying larger sums less often, or smaller sums more often? With the service you offer, does it make more sense to bill per use or by week or month? If you’re unsure, it never hurts to poll your customer base and learn what they prefer.
  • Consider Your Cash Flow Needs. You might need consistent funds to run the company, and some billing cycles only happen a few times a year. Think about your current financial systems and what type of cycle can best serve them. For example, you might prefer the large sum from annual billing over smaller ones every month.
  • Take Industry Standards Into Account. How often do most businesses charge? Customers might expect a certain billing cycle, so it could be best to follow similar companies’ practices.
  • See What Your Invoice Software Supports. Some programs default to monthly or weekly billing. And others don’t even support annual or per-use invoices. Take note of what your invoicing software can do, and make sure your chosen cycle is available. 

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3 Expert Tips for Managing Your Billing Cycle

Managing a billing cycle effectively requires planning and organization. Here are some quick tips for a smooth process:

  1. Automate the Billing Process. Automation saves you time, no matter what type of cycle you use. Invoicing software like Invoice Simple can send reminders, process payments, and issue receipts on its own. All you have to do is set it up and check its work. 
  2. Offer Multiple Payment Methods. Customers may pay faster if they have more options. Set up as many payment methods as possible, like credit cards, checks, and wire transfers.
  3. Send Simple Invoices. Invoices or bills should be concise and easy to understand. Make sure their sections are clear and have all relevant information. Customers won’t need as much clarification, saving time on both sides. 

Manage Billing Cycles With Invoice Simple

Invoice Simple makes billing a breeze, whether you’re invoicing customers or collecting your own payments. Its business expense and receipt tracker lets you scan any receipt and capture key info automatically. And when you bill customers and clients, Invoice Simple offers clear invoices, accepts multiple payment methods, and makes your business look professional the whole way through.

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