Billing Cycle

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Last Updated:December 13, 2023

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What is the Billing Cycle?

A billing cycle, also known as the “billing period or statement period,” is the period of time it takes for the closing dates of two statements of goods and/or services the firm provides.

During the billing period, all your transactions are recorded. When the duration of the cycle ends, all the transactions done during the billing period and your previous balances are summed up together to get the statement balance.

This cycle exists for the majority of financial instruments that demand monthly payments, such as credit cards, student loans, and vehicle loans.

In the case of having a credit card, a billing statement often informs you of the following:

Your previous account balances.
Purchases and payments are made within the billing cycle.
Any outstanding fees (late fees, balance transfer fees, etc.)
Your unpaid balance's interest.
The new statement period balance depends on your purchases, payments, interest, and fees.
The necessary minimum payment and its due date.

Remember that even if you shut your account, you will still get monthly statements for any leftover debt until the account is entirely paid off.

How does the billing cycle work?

The card issuer will total all transactions that happened during the cycle at the conclusion of each billing period. It will also include any amounts carried over from the prior payment period.

Your issuer will then send you a credit card statement that includes a summary of your account activity, statement balance, minimum payment, and due date.

Your credit card company will update your credit report at the completion of the payment cycle, which is also the closure date of your account statement. The credit bureaus will reflect your account status as of the final day of your billing cycle.

If you would like your account to quickly show a null balance on the card, you will have to pay as early as before the last payment date. Otherwise, assuming you don't charge anything new to your card, it will take another cycle for a zero balance to appear on your credit report.

The beginning and finish dates for the billing session are usually found on the first page of your statement, next to the balance. These vary by industry and are mostly determined by the market strength of the individual firm.

Your card company may mention the number of days in your billing cycle, or you will have to count them yourself. You can count the number of days between the starting date and the closure date.

For example, if your statement period begins on April 8 and ends on March 6, your billing cycle will be 29 days long.

How long is a billing cycle?

It is the time span between the previous and current billing dates for any sale of products or provision of services.

A billing period usually follows the industry's standards; however, statement periods vary in duration depending on the lender or service provider to enable them to better manage cash flows or handle changes in consumer creditworthiness, but they typically run for 20 to 45 days.

Companies frequently choose the invoicing term based on the goodwill of the consumer. Assume a client has done business with the company for a long period and has never defaulted. Because it is not concerned about poor receivables, the firm will provide a longer billing period.

Customers aim to generate market goodwill to secure advantageous conditions.

Customers are given a set amount of time to pay at the conclusion of each billing period. It is known as the grace period, defined as a period during which a lender allows a borrower to suspend making loan payments.

During this period, no interest payments are charged to the borrower. The account will be penalized if the holder does not pay the balance or amount due on time.

Uses of billing cycles

Customers benefit from them because they teach discipline. Customers are now aware that they must pay for the company after a set amount of time. As a result, it assists them in budgeting appropriately.

1. Plan purchases and payments

Understanding the cycle, statement balances, grace periods, and due dates will help you make more informed decisions about when and how to use a credit card. Knowing when a billing period ends might help you budget for the next bill.

You may prevent incurring interest by paying the amount in full. Even if that isn't possible, you can avoid a late charge by making the minimum payment by the due date. Your credit score may suffer if you are more than 30 days past due.

2. Monitor credit cards, credit reports, and scores

Checking your credit card balance at the beginning and end of each cycle will help you keep track of your present amount and plan for forthcoming obligations.

Some banks/companies provide mobile applications or online accounts for their customers in order to monitor their scores. You can ask your lender if any of those options exist.

3. Classify customers

All organizations have a vast number of clients. Therefore, statement periods assist the firm in distinguishing between good and poor consumers.

If it is discovered that a certain client consistently fails to make payment by the due date, that customer may be declared bad, and no future transactions may be carried out with him.

4. Helps auditors

External auditors always require invoices to certify the balance in the books of accounts. As a result, frequent bill production serves as documentation of the transactions recorded and aids in the event of a legal investigation.

Examples Of Billing Cycle

Example 1

After obtaining a television subscription, the consumer must pay a monthly fee to create and maintain the service. A television company's billing cycle may begin on the first of the month and terminate on the 30th.

TV providers can schedule from the 15th of the month to the 15th of the next month. Statement periods range in duration from 20 to 45 days, depending on the credit card company or service provider. They can also employ a rolling billing cycle.

A cable TV provider can set up a client's statement period based on when the consumer subscribes.

Example 2

After obtaining a new mobile phone, you must pay a monthly fee to establish and maintain the service. A cell phone service provider may begin charging for service on the fifth of the month and then bill again on the fifth of every month.

When you check your monthly bill, you'll find a list of all the charges for that month. The statement will also indicate a payment due date, which will most likely be the same day each month.

If the costs are not paid in full by the due date, they will be applied to the following cycle, along with any applicable late fees or interest charges.

What kind of expenses can occur during the billing Cycle?

The major charges can include:

Charges incurred during the billing cycle
Balances owed from past billing periods
Charges for interest
Fees such as annual and subscription fees.

Moreover, other charges might also include:

Credits for refunds
Statement credits resulting from cashback incentives
Payment of bills
Advances on cash
Transfers of funds

Can the billing cycle date change?

The card issuer might be able to modify the account’s billing cycle, but you and the customer will be notified first. Changing the duration of your card's payment cycle is usually difficult to do, but whoever is willing to adjust it must first request a different bill due date.

If the modification is authorized, it may take one to two statement periods to take effect, and this will lead to a shift in the date of the payment.

For instance, some companies may never accept a shift in the billing cycle; on the other hand, some other companies have policies that explicitly state when their customers can change the period of their payments, such as:

“You are allowed to adjust your due date once every two consecutive payments. This adjustment may take 1-2 payment cycles to take effect.”

What are the effects on the credit score?

Every month, most credit card issuers submit the customers' account information to three major credit agencies – Experian, Equifax, and TransUnion.

At the completion of each cycle, any activities taken by the client, such as purchases made, balance transfers, or minimum payments, will be reported to at least one bureau and shown on your credit report.

For example, the credit bureaus will be notified if you have an $8,000 amount as a closing balance of the customer's payment cycle. Any reported information might have an impact on your credit score.

Two major credit score components are affected by the statement period:

Your payment record: An essential aspect of your credit score is your payment history. It fluctuates based on whether you pay your payments on time. As a result, the due date of your billing period is critical, as failing to make the minimum payment by this date might harm your payment history.
Your credit usage rate: Your credit utilization rate is the amount of credit you use at any moment. It is preferable to keep it low, implying that you are just utilizing a tiny percentage of your credit. Because your credit usage is frequently reported to credit agencies on your statement closure date, having a large balance on that day may result in a high utilization rate.