How a billing cycle works
Each cycle has a start, an end and a billing date. With billing in advance, the customer pays at the start for the period ahead, as with most subscriptions. With billing in arrears, the customer pays at the end for what was used, as with metered services and utilities.
The cycle is anchored in one of two ways. Anniversary billing starts each customer's cycle on the day of sign-up, and calendar billing puts every customer on the same dates, usually with a prorated first period.
Month lengths need a rule: a cycle that starts on the 31st has to bill on the last day of shorter months.
Billing cycles on card and credit accounts
Issuers use the same idea for statements. A credit card's cycle closes on the statement date, the purchases made during the cycle are totalled, and payment falls due some days later.
Why the billing cycle matters
The cycle shapes cash flow: annual billing in advance collects a year of revenue up front, and monthly billing in arrears waits for it. A change of plan inside a cycle calls for proration.
Operations follow the cycle too. Calendar billing sends every charge on the same day, which concentrates load, declines and support contacts, and the retry schedule for failed payments has to finish before the next cycle begins.
Billing cycle, payment terms or contract term?
- Payment terms
- How long a customer has to pay an invoice once it is issued, such as 30 days. The billing cycle sets when the invoice is issued.
- Contract term
- How long the customer is committed. A 12-month contract can be billed monthly, quarterly or once.
Where a billing cycle shows up in a platform
Modules that do the work
- LedgerThe double-entry book of record behind every balance, fee and transfer.
- CheckoutA hosted checkout for cards, wallets, bank payments and crypto, routed to the best provider.
- NotificationsEmail, SMS, push and in-app messages in your brand, through the providers you choose.