The billing cycle is the recurring date on which a business issues invoices to its customers. For example, an accounting department may be geared to issue invoices on the first day of each month that relate to the goods and services it has provided during the past month. The monthly billing cycle is quite common among consulting, accounting, and legal firms, which compile their billable hours for the past month and then issue invoices to their customers early in the next month.
When a business wants to accelerate its cash flows, it can adopt a more frequent billing cycle, such as once a week. However, excessively rapid billing cycles can annoy customers, who may then have to process far more invoices. Customers generally prefer to receive invoices from a supplier on a consistent date, which makes it easier for them to plan their outgoing cash payments. Consequently, the choice of billing cycle must balance improved cash flows against customer service.
The billing cycle is typically built into the operations calendar of the accounting department, where a certain day of the week or month is set aside for billing activities. This rigorous approach is efficient, since the accounting staff can focus on just the billing task without being interrupted. Conversely, issuing invoices every day in smaller quantities can be less efficient, since employees may be interrupted by other activities at any time.