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All about billing cycle

Updated on :  

08 min read.

A monthly statement includes a breakdown of the charges for every month. Similarly, the bill will specify a due date, likely the same day of each month. This monthly statement is generated as per a billing cycle.

What is the billing cycle in invoicing?

In business, a billing cycle is an interval between one billing statement date and the next statement date for recurring goods or services provided from one company to another or a consumer.

Billing cycles are normally set every month. The length of the cycle depends on the type of products and services rendered. It guides companies in charging customers and aids internal departments in their activities.

How does a billing cycle work?

Despite being most often used to describe the periods between credit card bills, billing cycles can also be applied to subscription services, utilities, and more.

In some companies, the billing cycle begins on the date the account was opened, but that’s not always the case. In some instances, they may choose to have a common billing cycle for all accounts. In this case, they will be billed in pro-rata according to how much time passed before the next billing cycle began.

Grace period is a familiar term in the world of business. It refers to the period, usually 10-15 days, provided to the customers to conveniently fulfil their payments. If the payment is not made within the grace period, additional charges may be levied in the form of penalties.

The grace period is usually mentioned in the offer documents and the contract for credit card billing cycles. Interest will be levied if the payment is delayed.

For subscriptions such as broadband services, the bill will normally reflect just one or two line items every month for the services used. However, credit card bills will contain an itemised list of all the charges and payments made with the credit card.

The total amount includes any additional charges, if applicable. Once the billing cycle is set, the payment date will fall consistently around the same time every month, making it easier for the customer to keep the funds ready to pay it off.

The date of the billing statement generation and the payment date are never the same. The payment date normally falls 20-25 days after the end of the billing cycle.

Examples of a billing cycle

Once a customer opts for a broadband connection, they must pay a fixed sum of money every month falls typically as long as they wish to avail the service. The telecom company can then start the billing cycle from that date, such as the 15th of the month.

The billing cycle can end on the 15th of the next month, upon which a statement of charges is generated. The grace period could be given until the end of the month (15 days). So, ideally, if the bill for services is generated up to 15th June, the grace period provided could be until 30th June.

The other option would be to start the billing cycle on the 1st of every month, a common occurrence.

Establishing the billing cycle also helps facilitate tracking of unpaid dues and helps in the maintenance of accounting records too.