Billing in advance vs in arrears

In advance means the invoice is issued at the start of the period. The customer pays in January for January-to-December service. This is the norm for recurring subscription fees.

In arrears means the invoice is issued at the end of the period, for service already delivered. This is the norm for usage-based charges, because you cannot invoice consumption before it happens.

Most B2B SaaS contracts do both at once

A typical hybrid contract bills the platform fee annually in advance and metered usage monthly in arrears. That is one subscription producing two invoice streams on two different schedules, which is exactly the structure that trips up billing systems designed around a single recurring charge.

The cash and accounting consequences

Advance billing collects cash before the service is delivered, which creates deferred revenue — a liability on the balance sheet that unwinds as you deliver. It is also, in effect, interest-free financing from your customers, and the reason annual-prepay discounts are worth offering: trading 10–15% of contract value for a year of working capital is usually cheaper than any other funding available to a growing SaaS company.

Arrears billing delays cash by a full cycle and creates the opposite position — an unbilled receivable for revenue earned but not yet invoiced. It also carries genuine credit risk, since the service has already been consumed by the time you ask to be paid. Usage-heavy businesses manage that with minimum commitments, prepaid credits, or credit limits that trigger interim invoicing.