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For growing SMBs, financial management is key. With so many different types of payments to manage—vendor, payroll, bills, and more—it's important to stay on top of your financial management strategy to ensure that you're maintaining positive cashflow.

That said, your accounting books might suggest you have the cash to pay your bills, but the billing cycle on your credit cards, loans, and invoices paint a different picture. They're an often overlooked aspect of financial management that can all have an impact on your overall strategy and the health of your business.

In this article, we’ll explain how to control that.  

What is a billing cycle?


A billing cycle is the duration of time between which minimum payments are due, generally for a credit card. The next billing cycle begins at the end of the previous cycle.

Your business deals with multiple billing cycles. Credit cards typically have a billing statement every 28-31 days and loan payments are due monthly. Meanwhile, your sales department is offering net payment terms that might not be redeemed for several months. Those affect outgoing payments. The cycles that can cause real unmanageability are the incoming revenues.

Let’s use net payment terms as an example. One of your salespeople signs a deal with a new customer, offering to deliver a service or product with a net-90-day invoice. Costs on that sale are incurred immediately. Payment doesn’t arrive until three months later. The company needs to cover those costs using cash on hand. This is where things can get a little tricky.

To offset this, accounting departments take advantage of debt billing cycles. Loans provide money up front that can be paid back in monthly installments. Credit cards have shorter billing cycles, so they are used for short-term expenses. Balancing the billing cycles so that inflows arrive before the outflows become due is part of their spend management strategy.

How long is a billing cycle?

Loan and credit card companies bill once a month. That doesn’t tell the whole story. A loan needs to be viewed for what it is: a lump sum of cash that needs to be fully paid back by the end of each billing cycle. You can budget the payments as part of a billing cycle, but the total payoff needs to be viewed from a macro level to ensure a profit was made on that money.

Credit cards are another story. The minimum monthly payment due date is every 28-31 days before the end of the billing cycle. Make it and you satisfy the terms of the credit card agreement. Unfortunately, you’ll lose purchasing power if you don’t pay the entire statement balance of what you spent on that card the previous month. This is a mistake that gets many small businesses in trouble.

The third piece of this equation is your internal invoice processing. That’s a cycle, too. If your processing is set at 90 days, you’re making debt payments three times before getting paid. That’s in addition to any bills owed to vendors, who have their own billing cycles. If those are shorter than yours, it creates a cash flow crunch that can put you in financial distress.

Pros and cons of different billing cycles


To better understand this, let’s break billing cycles down into three categories: monthly, quarterly, and annual. Shorter billing cycles on debt payments put pressure on the accounting department but that doesn’t mean they’re bad. There are benefits to making monthly payments. The sections below outline the pros and cons of these billing cycles.

Monthly billing cycle

Monthly billing cycles put pressure on the accounting department to pay bills more frequently, but credit card and loan agreements are set up that way. The key to effectively managing a monthly billing cycle in the debt column is to properly determine how much to pay each month. Minimum credit cards balances benefit the lender more than the company making payments.

The upside to monthly billing cycles is that they’re easier to budget for and minimize liabilities that need to get paid during a 30-day period. This is good for companies that are absorbing long-term debt while they build their customer base or expand operations. Having more cash on hand in those situations is more advantageous than paying the debt off quickly.  

Quarterly billing cycle

Quarterly billing cycles provide more breathing room between debt payments. They match up well with net-90 day invoicing because money is coming in by the time the debt becomes due. That doesn’t necessarily improve cash flow, but it does cut down on the number of accounting entries during the quarter. For some business owners, that makes it easier to budget.

The problem with quarterly billing cycles is that the individual payments are higher, and interest accumulates on the outstanding balance. This increases the total amount required to pay off the debt. Vendors, in some cases, also charge a fee for setting up quarterly billing. They’re dealing with the same cash flow challenges you are, so expect to pay extra for this.  

Annual billing cycle

Annual billing cycles aren’t like monthly or quarterly billing because the first installment is typically paid upfront. This is a common billing model with software vendors. They offer a discounted price in return for an annual commitment. The downside is that the next year’s bill might not be discounted, and it will be due in full upon renewal.  

It’s rare to find vendors who will agree to annual billing without an upfront payment. Lenders, on the other hand, particularly if they’re in the private sector, might be willing to accept this arrangement. If you’re able to go the route of annual billing cycles, make sure you have a plan to make that money work for you in the next twelve months.    

Using your billing cycle to plan payments and purchases


The best way to look at this is to compare it to your personal credit situation. An individual with a well-thought-out budget will plan their monthly debt payments based on the amount and timing of their income. If you get paid once a month, all debt payments will be made when that paycheck hits your bank account. That frees you up for the rest of the month.

With a business, it’s not that simple. Daily revenue and consistent cash flow is ideal, but that’s not a reality for most small businesses. The invoice processing cycle determines how often money is coming in. If sales are erratic or inconsistent, it doesn’t just affect you in the present. It could disrupt bill paying months down the line. That’s a tough hole to crawl out of.

Adjusting your billing and invoicing cycles is one way to correct these problems. Offering net-60 or even net-30-day terms improves your cashflow. Negotiating vendor contracts for quarterly or annual billing can create some breathing room.

Also, whenever possible, try to set up automated bill payment when you can’t negotiate billing cycle terms. While they won’t free you up of any cash crunches, you can count on a steadily increasing business credit score since bills are being paid on time and happier vendors who know they can count on timely payments.

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How many days is a billing cycle?

Billing periods for credit card companies are 28-31 days. Some credit card companies offer a grace period, but they are not required to. Billing cycles for lenders and outside vendors could be monthly, quarterly, or annual.

How do I know my billing cycle?

The billing cycle due date should be clearly defined on the monthly credit cards statement or vendor invoice. If not, read through the terms and conditions of the original agreement.  

Is a billing cycle the same as a month?

No. The billing cycle is the number of days in the month that the credit card issuer or lending company is counting before they bill you. Interest is calculated based on that number.   

How do you automate bill payments?

The best way to automate bill payments is by using You can also automate them by going to the website of the credit card company, lender, or vendor that you owe money to.

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