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What is a billing cycle?

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Last editedApr 20232 min read

If your business has a credit card or a subscription for which you make recurring payments, it could pay to have a strong understanding of billing cycles. So, what is a billing cycle? Explore the full meaning of the billing cycle, as well as how they work, with our simple guide.

Billing cycle meaning

A billing cycle, also referred to as a billing period, is the interval of time between billing statements. Although billing cycles are most often set at one month, they may vary in length depending on the product/service rendered. Typically, the billing cycle lasts anywhere between 20 and 45 days. Billing cycles help businesses to understand when to charge customers, while they also help your accounting or accounts receivable teams monitor the amount of revenue that you need to collect.

How does a billing cycle work?

Although billing cycles are most often used to describe the period between billings for credit cards, they are also commonly used for subscription services, utilities, mortgages, and more. While some companies may decide to begin the billing cycle on the day that the account was opened, others may want the billing cycle for all accounts to start on the same day. If the latter is the case, the company will prorate your bill for the amount of time before the next billing cycle kicks off.

At the end of each billing cycle, customers are given a certain amount of time to send their payment. This is referred to as a “grace period.” If the account holder doesn’t send payment, then the account may be subject to penalties. When it comes to billing cycles for debit cards or credit cards, the grace period refers to the interval of time specified in your contract when you can make interest-free payments on money that you’ve borrowed.

When you look at your billing statement, you’ll see a list of charges. For subscription payments, there’ll generally only be one item (your monthly payment), although in the first month, you may also need to pay installation/set-up costs. For other services, such as credit cards, you’ll see an itemised list of all your charges for that month. Your payment date is likely to be the same every month, and if you don’t pay your charges in full, interest/late fees may be applied.

It’s important to remember that the date you receive your billing statement isn’t the same as the payment date, which will be outlined in your contract or online account. In most cases, the payment date will fall around 21-25 days after the end of the billing cycle. To avoid the penalties associated with late payments at the end of your billing cycle, it may be a good idea to set up an ACH Debit (or if your business is doing the billing, encouraging your customers to opt for Direct Debit payments).

How to change the billing cycle of a credit card

When it comes to billing cycles for debit cards or credit cards, it’s always helpful to have a billing cycle that suits your finances. Although you cannot change the length or dates of your billing cycle, you may be able to adjust your payment due date (causing your billing cycle dates to change). Many providers allow you to choose from a range of different dates, although it’s important to remember that you can’t change your payment date on a whim, as it usually requires one or more billing cycles to take effect. 

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