Billing Cycle

Updated on April 26, 2024
Article bySourav Sinha
Edited byPallabi Banerjee
Reviewed byDheeraj Vaidya, CFA, FRM

What Is A Billing Cycle?

The billing cycle is the period between one billing statement and the next billing date that companies generate for their services and products sold to the customers. The customers make payments based on the bill invoices received from suppliers, and this cycle doesn’t need to be monthly. It mostly depends on the type of service or goods sold.

What Is A Billing Cycle

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This is extremely beneficial for organizations to maintain a steady cash flow. Most of the transactions in the real world are done via credit. Without billing, the cash that went out of the business for production will not flow in. So a steady billing cycle helps generate the working capital needed for the business.

Key Takeaways

  • . Billing cycle refers to the time between one billing statement and the following billing date businesses create for the services and goods they sell to clients.
  • The cycle that suppliers charge typically affects the billing cycle to clients. The company will require cash if the suppliers have a short billing cycle, which customers can satisfy if they pay.
  • It typically occurs when the suppliers are consolidated and have access to the supply of raw materials. The billing cycles of consumers and suppliers must remain balanced for the business.

How does it Work?

Billing Cycle Benefits

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How To Know?

  • The billing cycle of companies is properly mentioned in the agreement signed with the customers before the transaction. These are different in different sectors and are mostly dependent on the market strength of the particular company.
  • It is normally done on a month to month basis but sometimes it may be quarterly billing cycle. However, it may be different for different goods and services or in different sectors.
  • Cardholders need to understand and be familiar with the billing cycle date of their cards whenever they use them.

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Calculation

Example

Hindustan Unilever (HUL) is a big player in the FMCGFMCGFast-moving consumer goods (FMCG) are non-durable consumer goods that sell like hotcakes as they usually come with a low price and high usability. Their examples include toothpaste, ready-to-make food, soap, cookie, notebook, chocolate, etc.read more sector in INDIA. They keep a three months payable cycle and a 1-month receivable cycle. So they are so big in the market that their suppliers have customized their billing cycle as per the terms offered by HUL. After three months, they pay for supplies, and they receive payments from their customers within one month. This proves they are cash-rich. This is usually mentioned in a company’s annual report and must be read thoroughly.

Benefits

Limitations

  • It becomes tough to understand and estimate the revenue that can be collected because customers may delay the payment or default. Thus, the business does not necessarily receive cash or income even if the quarterly or monthly billing cycle is complete.
  • The churn rate can increase because, similar the the above mentioned point, the customers may not pay up within due date or may pay and then discontinue with the subscription. This payment cycle gives them the time to change their mind regarding payment of continuation of purchase, due to which it becomes difficult for companies to understand the actual number of faithful customers.
  • Due to the above problems the cash flow of the business is negatively affected.
  • If the business is a purchaser and has to pay bills monthly billing cycle, the accounts department is under severe pressure to pay the bills.
  • If the company is a big player in the market, they can follow a secured credit card billing cycle quarterly, then the interest that has to be paid for three months gets accumulated and the amount increases which is a waste of financial resource.
  • For small business, if the sales is consistent, it is easy to handle the bill cycles. But for inconsistent or erratic sales, meeting the payment cycle becomes a huge problem because the  may not be enough or not come on time to meet the bills.

Billing Cycle Vs Due Date

  • The former is the time period starting from one billing date till the next billing date, whereas the latter is the final date of paying the bill.
  • The former refers to a logn time period which may be a month, quarter or year whereas the latter refers to just one day.
  • The former is fixed as per the purchase agreement whereas the latter may be extended through granting an extra credit period which may extend beyond billing cycle.

Frequently Asked Questions (FAQs)

Is a billing cycle thirty days long?

The typical billing cycle for a credit card is 28 to 31 days. Your statement balance is calculated after each billing cycle by adding the transactions to your previous amount, if there was one.

Can one change the credit card billing cycle?

In most cases, it is possible to change the billing cycle of a credit card, although it depends on specific policies and procedures of the credit card issuer. Moreover, changing the credit card billing cycle can affect the due date and timing of interest charges and other fees.

Billing cycle vs billing period

Billing cycle vs billing period

Recommended Articles

This has been a guide to what is Billing Cycle. We explain how to know it along with example, calculation, differences with due date, benefits & limitations. You can learn more about it from the following articles –