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Billing in Accounting Explained

Updated on :  

08 min read.

Billing is a process that plays a crucial role in ensuring that payments are received on time. Billing enables the business to function with ease.

What is billing in accounting

In simple terms, billing refers to the process of raising and sending invoices to customers and requesting them to settle the dues. Invoices are documents that serve as a source of record-keeping for businesses and as a means of requesting payment from customers.

The importance of billing is as follows- 

  • Acts as an inventory tracker
  • Helps in bookkeeping
  • Serves as evidence when necessary
  • Forms part of data collection
  • Helps businesses stay legally compliant

Types of billing

  • Progress billing

Progress billing is a method where billing is done incrementally throughout the life of the project. It is commonly used in large scale, long-term projects, such as infrastructure and defence projects.

  • Milestone billing

A milestone is an event that signifies an essential change or completion of a phase in a particular project. The invoices are generated on the completion of a specific milestone; it is termed milestone billing. 

  • Sub-line-item billing

The construction industry has elements of a particular project phase that are completed from time to time, such as the foundation, plumbing, roofing, etc. For every element, a bill may be generated. Setting dates for these payments in advance increases the chance of receiving the payment on time.

  • Billing on completion

Here, the billing is done only once the goods are supplied, or the services are rendered. It is commonly used by businesses that offer retail services. Once a product or service has been provided or a project has been completed, the payment is made.

  • Billing for ongoing services

For subscription model run businesses, a recurring billing plan is most convenient. For instance, if one wishes to use Microsoft 365, a recurring billing plan will be set up on the expiry of the trial period.

  • Pro-rated billing

The Latin word “pro-rata” roughly translates to “in proportion to”. Where the customer is charged only for the period of use of your services, the type of billing referred to is pro-rated billing. This is used to give the customers. 

The billing process in accounting

  • Analysis and review of the information necessary for billing

The information needed for billing needs first to be collected, analysed and then reviewed. Details such as product code, product price, freight and other charges, applicable taxes, etc., have to be reviewed and verified before preparing the invoice.  

  • Creating and generating an invoice

Once all the relevant information has been adequately verified, the invoice is created. The invoice template must be professional and contain relevant details, such as the itemised list of goods supplied, the supplier’s details, the business logo, payment mode, etc. There are various online sources and tools for professional invoices to be designed and used on the fly.

  • Dispatch of the ready invoice

The invoice may be dispatched either electronically or physically, or through both modes. Businesses today opt for emails to be the primary mode of delivery about invoices. With automation prevalent in businesses today, the accounting and invoicing software may automatically send out invoices as soon as they are created. 

FAQs on billing

  • What is a billing cycle?

A billing cycle is the billing period, the number of days between the previous billing date and the next billing date.

  • Why is a billing cycle important?

It provides the companies with the information as to when the customers need to be charged. The billing cycle also helps the customers plan their expenses accordingly to make the payments on time.

  • What is a billing system?

The billing system is the process or procedure that the business follows, which helps them invoice the customers.

  • What is the purpose of billing?

The main purpose of billing is to help the company keep track of all the sale transactions that have taken place.