What Is a Billing Cycle?

Last Updated March 27, 2024

All businesses rely on a variety of vendors. From rent and utilities to credit lenders and service providers specific to your industry, these vendors are an important part of your day-to-day operations and can even have a major impact on your business’s cash flow.

And equally important for your small business’s finances is understanding the billing cycles of each of these vendors. By understanding what a bill cycle is and how it works, you can maintain healthy cash flow and a strong business credit score.

What Is a Billing Cycle?

An important element of accounts payable, a billing cycle covers a period of time during which you received products or services from a vendor. When you receive the invoice, you get billed for services rendered during that cycle. Any services provided after the end of the billing cycle will appear on the next statement. As such, billing cycles apply to ongoing service agreements, rather than one-time purchases.

A billing cycle shouldn’t be confused with a payment cycle, meaning the amount of time you have to complete payment for items in an invoice. For example, while your billing cycle might end on June 14, the payment generally wouldn’t be due until later, based on the payment terms of your contract. The payment cycle, then, refers to the period of time between payment due dates.

How Does a Billing Cycle Work?

The billing process steps are relatively straightforward. After opening an account or beginning service with a vendor, the billing cycle begins. The vendor establishes a set length for the billing cycle (such as two weeks, one month, or one quarter). During the billing cycle, all products and services received are added to your account balance.

At the end of the billing cycle, you will be presented with your total statement balance. This marks the end of the cycle and the start of the new cycle. Payment is due within 10 to 30 days depending on the payment or loan terms. If you don’t pay off the billing statement in full, the remaining total will be added to the total amount owed for the next bill cycle.

Understanding how a billing cycle works is critical when conducting your everyday business accounting procedures.

How Long Is a Billing Cycle?

Billing periods can vary in length depending on the service provider in question. However, the most common billing cycle length is one month – this is especially common with credit cards, utilities, and rent or mortgage payments. As such, these cycles will technically vary from 28 to 31 days, depending on the length of the month.

However, not all vendors stick to a monthly billing cycle. Some use a bi-weekly cycle, meaning that clients are charged every two weeks. Others follow a quarterly billing cycle for long-term or seasonal services.

Billing cycle length is usually based on the cash flow needs of the business providing the service. However, vendors can lengthen or shorten the length to anticipate late payments or meet the needs of a customer with a strong credit history.

Example of a Billing Cycle

For most consumers and small businesses, the most straightforward billing cycle example is that of a credit card. Your credit card issuer starts a billing cycle on a set date each month (for example, the 14th) which runs for one month (in this case, until the 13th).

At the end of the billing cycle, the credit card issuer provides a billing statement that lists all transactions made on the credit card during the previous cycle. The credit card user has a set period to pay the balance in full before they will be charged late fees and start accumulating interest on their balance. Any balance that is not paid off will be applied to the next cycle, which begins automatically at the end of the previous one.

Billing cycles function similarly with other vendors as well, such as SaaS providers, utility companies, and so on. Your invoice payment terms define how much time you have to pay.

How Does a Billing Cycle Impact Your Credit Score?

The length of your billing cycles (as well as when they start and end) doesn’t directly impact your business’s credit score. However, the billing cycle of lending products can have an indirect impact on your credit score based on when you pay off the balance. Lenders typically report account information to credit bureaus at the end of the cycle.

A high balance could hurt your credit score if you are utilizing a lot of your business’s available credit. On the other hand, paying down your balances could improve your credit score by lowering your credit utilization ratio.

Billing cycles also have an impact on your cash flow, since payment due dates are tied to billing cycle end dates. A billing cycle calculator can help you track when payments will be due based on the date of your invoice and payment terms. Depending on when you receive payments, you may need to adjust billing cycles with your vendors to maintain a healthy cash flow.

Billing Cycle FAQs

When does a billing cycle start?

The billing cycle start date can vary between different types of businesses and services. For example, some service providers have the billing cycle start on the date when a client first signs up for service (such as SaaS companies). Others begin the billing cycle on the first of the month (as is common with property rentals). The billing cycle start date is generally listed on the invoice.

When does a billing cycle end?

A billing cycle will typically end after roughly one month, though some vendors and creditors may have longer or shorter billing cycles. After the billing cycle ends, clients are responsible for all charges accumulated during the billing cycle and are given a set period of time to make a payment on those charges.

Does paying before a billing cycle ends hurt your credit score?

No. In fact, it can have the opposite effect by reducing your balance that gets reported to credit bureaus at the end of the billing cycle. A reduced balance means lower credit utilization, which can actually increase your credit score.

Can I change my credit card billing cycle?

You can’t change the length of your billing cycle, but you can request a new payment due date. This could also change the start and end dates for each billing cycle, though the process varies between credit card providers.

What does “billed quarterly” mean?

The billed quarterly meaning is that customers are billed once per quarter – or once every three months. Quarterly billing cycles are typically used for long-term or seasonal services. Common examples of vendors that bill quarterly include utility providers or maintenance or landscaping contracts.

How long is 2 billing cycles?

With most credit issuers and vendors, two billing cycles are roughly equivalent to two months. Because the exact length of a billing cycle can vary, particularly in the B2B space, it is best to confirm billing cycle length with your vendor or creditor so you can get an exact timeframe.

How many months is 21 billing cycles?

Generally speaking, since most billing cycles are one month, 21 billing cycles will usually be around 21 months. However, the specific length of a billing cycle can sometimes vary between lenders or vendors.