A billing cycle is the time interval that is counted from the end of one invoice or billing statement date to the next billing statement date for services or goods that a company offers on the recurring period.
Often, a billing cycle is set every month. However, it varies in tenure based on the product or service type that the customer has rendered.
Now that you have understood the meaning of billing cycle in a sentence, you must also know that with the help of billing cycle, companies get guided on when customers should be charged and assist businesses to evaluate the revenue they will be receiving. Not just that, but billing cycles also help internal departments like accounts receivable unit and more to keep an eye on how much revenue has to be acquired.
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The recurring cycle also allows customers to understand when they can be charged expectedly. Towards the end of the billing cycle, the customer has a specific amount of time to remit the payment. This is known as the grace period that gets expired on the due date.
The date at which the cycle starts is mainly dependent on the service type that is offered and the needs of the customers. Suppose you have an apartment on rent, and you receive the billing Receipt on every month’s first, irrespective of when you signed the Lease.
This billing cycle style not just makes the process of Accounting much simpler but also remains easier to remember. If not this, companies may also choose a rolling billing cycle that allows them to choose a billing date based on when services began.
Although regulated by the norms of the Industry regarding the length, vendors can change credit card billing cycle by lengthening or shortening the cycle to Handle cash flows or to alter the creditworthiness of a customer.
For example, fruits and vegetable wholesaler may have to increase the cash flows receipt as the company from which the seller is leasing delivery vehicles has tightened the billing cycle.
The billing cycle flexibility can work the other way as well. Imagine a large corporate customer requires to increase the cycle from 30 days to 60 days for a SaaS service. If only the creditworthiness of the customer is satisfied, the vendor will agree to lengthen the cycle.