Billing, Invoicing, and Payments
Billing turns commercial terms into money owed. The recurring question is what period does this invoice cover, and what period did the service cover? Billing period (when it is billed) and service period (when it is consumed) are different, and most billing questions turn on that distinction.
Concepts
Billing accounts collect invoices; invoices contain invoice lines; billing schedules generate those lines on a cadence. Billing rules decide whether charges are billed in advance, typical for subscriptions, or in arrears, typical for usage. Usage-based billing sums rated usage over a period before invoicing. Proration splits a partial period when a subscription starts, changes quantity, or ends mid-cycle. Credit memos reverse or reduce an invoice already issued. Payment terms define due dates and often generate payment schedules, while dunning handles failed payment.
Traps
- Invoice versus invoice line. Invoice totals are derived; a question about a specific charge points to a line.
- Credit memo versus editing an invoice. The correct instrument for reversing a posted invoice is a credit memo, never an edit.
- Proration basis. Daily proration over actual calendar days differs from monthly proration over standardized 30-day months. Use the convention the stem states.
- Advance billing creates deferred revenue. Cash collected before the service period is not revenue yet; this is a common crossover with recognition questions.
Rule of thumb
Write two dates for every billing scenario: the invoice date and the service start and end. If they differ, something is deferred, prorated, or billed in arrears. Name which one.
Worked example
An annual subscription of $1,200 billed in advance on 1 January is cancelled at the end of 30 June. Six months have been earned; the remaining $600 is refunded through a credit memo or held as a credit. The original invoice is not edited, and recognition stops at the cancellation date.