Small or large businesses often deal with billing cycles monthly, quarterly, or yearly because you would have fixed business expenses to run daily operations. Office rent, payment to vendors, or any software subscriptions are some expenses you might encounter at the end of the billing cycle.
Learning about the billing cycle meaning and its process helps you level up your financial game to manage business finances efficiently. You can even optimize your financial strategies which may help you scale your business real quick. Alright, before we jump into the billing process and how long is a billing cycle, let’s understand the basics right away.
Billing Cycle Meaning
The billing cycle is referred to as the time between the final dates of billing statements, which could be more or less in length according to your product or service. Usually, the billing cycle is set for a 30-day period, i.e. for a month. Transactions made from the billing period and previous balances combinedly make your statement. This process will aid you in understanding at what time you need to charge your customers. It offers a comprehensive view to your accounts receivable (AR) team to track the due amount, which needs to be collected. Notably, the next billing cycle will take place immediately right after the completion of the current cycle.
Now that you are familiar with the billing cycle definition, let’s move on to learn its process.
How Does a Billing Cycle Work?
Businesses mainly utilize billing cycles to determine billings for credit cards, subscription services, and mortgages. Major companies prefer the multiple billing cycle to start from the day of purchase, meaning all of them would start on different days. Others might prefer to start the billing cycle on the same day. In this scenario, the bill will be adjusted to account for the time before the next billing cycle begins. You will have a grace period to clear the dues. However, if you didn’t make payment, then it may lead to penalties.
The credit card billing cycle usually lasts for around 30 days. So, transactions made during this time are included in your balance. Later, the bill will be generated in a span of a few weeks and a new billing cycle will take place soon after the completion of the previous one. Let us understand this by taking an example.
Credit Card Billing Cycle Example
Assuming you have $2500 as the card balance for the current billing cycle, then $2500 will be a new balance, displayed on the credit card statement. This could be temporary because new transactions like interests, fees, payment transfers, and cash advances will impact your balance. So, the next bill you receive will be the sum of previous balances and other such transactions. Let’s say you have paid the full amount of $2500, made transactions of $1600, and received $100 as a cashback reward, then the updated balance would be $1500.
Keep Accurate Financial Records on Moon Invoice
Store your bills in the cloud-based invoicing software, Moon Invoice and maintain accurate records of your financial transactions. Create and view reports now.
How Long Is a Billing Cycle?
The billing cycle can be as long as 30 days, but not in all cases because lengthy might vary between 28 to 31 days. The actual length relies on the card issuer, so it may vary slightly according to their policies. Some billing cycles might be less than 30 days. Suppose you have purchased a trial plan for 7 days or 14 days, then you would receive a bill for a short billing cycle before you upgrade to the monthly plan.
Similarly, equipment rented can also have a short cycle of 14 days or less. Whereas, if you have purchased a basic plan of any software for 6 months, then the billing cycle would be extended to 180 days or more. This extended billing cycle ensures you won’t deal with billing too frequently.
3 Ways to Manage Billing Cycles to Improve Your Business Finances
Learn about the 3 ways to optimize your billing cycles and stay on top of your financial game.
1. Adjust Billing Cycles With Cash Flows
Since not all businesses have strong cash flows due to constant fluctuation in product sales, adjusting the billing cycle can significantly optimize the cash flow. If you’re experiencing frequent ups and downs, then such disruptions will negatively influence your billing cycle. After all, it’s your invoicing cycle that decides the incoming cash flow. So, you need to adjust the billing cycle accordingly. Suppose you can consider switching to net 60 from net 90.
2. Change Payment Due Date
Opt for changing the payment due date if it doesn’t work with incoming cash flows. You can ask the issuer to change the due date if you feel that will definitely work for you. In case your creditor rejects your proposal, you can negotiate to buy yourself extra time. By doing so, only the due date will be different but the billing period will remain as it is. Suppose your current billing date is the 16th, you can discuss it with the AR team and change it to the 20th or 21st when you have sufficient funds.
3. Consider Automatic Payments
If the above two ways do not work, then enable automatic payments to pay bills on time, ultimately increasing your credit score. With the increase in your credit score, your purchasing power will also level up. Also, when bills are cleared in a timely manner, vendors are more than happy to collaborate with your company for a long time. Turning on auto-payment mode doesn’t solve any cash crunch problem, but makes sure you don’t miss out on paying bills.
Conclusion
A billing cycle, in a nutshell, is the period between your previous bill statement and the next one. Understanding how the billing cycle works is crucial for maintaining healthy cash flow. Without proper financial knowledge, you may struggle to manage business finances, leading to potential disruptions in your cash flow. Since now you know what is a billing cycle, and what are the ways to manage it, you’ll find it easier to ace financial management.
The process can be made more simple and efficient by using automated software like Moon Invoice. You can create, send, and store unlimited paperless bills from anywhere. You can even generate financial reports to get insights into expenses and accounts receivables. Get a free week of Moon Invoice Now.
FAQs
Jayanti Katariya is the founder & CEO of Moon Invoice, with over a decade of experience in developing SaaS products and the fintech industry. He holds a degree in engineering. Since 2011, Jayanti's expertise has helped thousands of businesses, from small startups to large enterprises, streamline invoicing, estimation, and accounting operations. His vision is to deliver top-tier financial solutions globally, ensuring efficient financial management for all business owners.
