Billing cycle

The billing cycle determines when invoices are generated. It is independent of the contract term and independent of revenue recognition, and conflating the three causes a large share of billing confusion.

A single customer can hold a three-year contract term, an annual billing cycle, and monthly revenue recognition simultaneously. All three are correct; they are answering different questions.

The anchor date

Every cycle needs an anchor — the day of the month or year on which the invoice is cut. Two conventions exist:

• Subscription-anchored. The cycle runs from the subscription start date. A customer starting on the 14th is billed on the 14th of every period. Simple, but it spreads invoicing across all 31 days of the month.
• Calendar-anchored. Everyone is billed on the 1st, with the first period prorated. This concentrates invoicing into a single run, which finance teams generally prefer, at the cost of a prorated first invoice.

Neither is wrong. Companies with a large SMB base often prefer calendar anchoring for operational simplicity; enterprise-weighted businesses usually anchor to the contract because customers expect their own dates.

Month-end edge cases

A subscription anchored to the 31st has no anniversary in February, April, June, September or November. The standard resolution is to bill on the last day of any shorter month, but it must be defined — this is the sort of detail that surfaces as a support ticket eighteen months after launch.