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What is Cycle Billing?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 10 December 2016
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Cycle billing is an invoicing strategy that involves the creation and updating of outstanding balances on customer accounts on a daily basis. This approach makes it possible to prepare a single invoice that covers an entire period or cycle, rather than billing customers for goods and services on an instance by instance basis. There are benefits associated with the cycle billing model that apply to both the supplier and the customer.

Many different types of businesses make use of cycle billing. Utility companies routinely update customer accounts on the amount of usage incurred for a given period or cycle. Typically, the billing period will be thirty days, or one calendar month. During that time, the customer account is updated from time to time, reflecting the customer’s use of the service provided. At the end of the current cycle, the invoice for the entire thirty days is finalized and forwarded to the customer for payment.

Various telecommunications services also make use of cycle billing. For example, a teleconference bureau will often calculate the cost of each conference call held by a given customer, and add the charges and detail to an invoice that is prepared specifically for that cycle. Assuming the customer holds a weekly conference call, the invoice for the cycle will carry information and charges related to each of those calls, usually arranged in chronological order on the invoice.

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The use of cycle billing provides benefits for everyone involved. For the supplier, using this model rather than issuing individual invoices for each order or event means that less time is spend in preparing, checking, printing, and mailing invoices to customers. Since all the activity for a single billing cycle appears on one invoice, the supplier also saves time and resources on the back end, when payments are received and must be posted in the company’s accounting records.

For customers, cycle billing makes it possible to have only one invoice to manage during the cycle, rather than dealing with a steady stream of invoices that must be paid. The customer also saves time and possibly money, if paying each invoice incurs some type of expense, such as postage or a fee for the acceptance of an online payment. Many customers focus more on the convenience of this approach, especially if there is little to no expense in submitting multiple payments.

Cycle billing is normally employed when the relationship between customer and supplier is governed with a contract or is of some type of ongoing nature. It is not unusual for the customer to undergo a credit check before the supplier establishes this type of arrangement with the potential customer. The model works well for credit card accounts, utilities, and even for tabs at local clubs or shops. Businesses that sell goods via mail order or online storefronts may not use this method, preferring to bill each order as it is placed and request payment up front.

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anon279857
Post 3

@anon277883 - How does it add interest?

I think 29-31 days is normal, but some companies identify cycles that are shorter or longer than that.

I don't think the number of days in the cycle affect interest. That is, if the cycle were 15 days or 45 days, the interest is still determined at a daily rate. The bill is just collected at a different interval (i.e., every 15 days or every 45 days).

What does affect the interest the card holder pays is one-cycle or single-cycle billing versus two-cycle or double-cycle billing.

For people that don't pay off their monthly balance, double cycle billing, I think, _can_ result in increased interest paid out over time, especially if the carried over balance changes significantly month to month.

Moderator's reply: Check out our article on Double Cycle Billing.

leilani
Post 2

anon277883 To avoid any kind of interest you could pay the total amount every month.

But honestly, the bank is loaning you money under certain conditions. You buy things because it would take you a long time to save that money and buy what you need with cash. You do agree to their terms and conditions because you want to have access to, and spend their money. Now that you have spent it, you are not happy.

The bank is entitled to make money somehow. They have to cover their back, pay all kind of expenses and make some profit, otherwise why would they be in business? It just makes business sense.

You could also pay this credit card off, and find another one with terms and conditions that better fit your needs.

anon277883
Post 1

I really do not understand why the bank we have our credit cards with can use a 32-day billing cycle. We are never late on payments, but called their customer service and asked why they are able to do this because it does add extra interest that goes to them.

To me, this should not be allowed. For all intents and purposes, the end result is more money for the bank. This would add up to considerable amount of money when they do this to thousands of their customers. No, I do not believe just because it is in the agreement that it is allowable. People have to use credit cards for many transactions. By the way, customer service could not answer this question.

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