What is Billing in Accounting?

What is Billing in Accounting?

Priyanka Tiku Tripathi
Priyanka Tiku Tripathi
Table of Contents
Table of Contents

What is Billing?

Most of us are likely to be familiar with the term ‘billing’ owing to its use in everyday speech. But if you’re running a business, it’s essential to delve into a more technical understanding of the concept. The standard accounting definition of billing describes it as the process of generating invoices for customers on a recurring or one-time basis, depending on the type of pricing plan that a customer has chosen.

Index:

  • What is Billing
  • Types of BIlling
  • How to Improve The Billing Process
  • Conclusion

The billing process includes several steps - defining product codes, setting up customer types, setting up billing systems, and creating billing cycles. Bills typically include the following components:

  • Billing Date
  • Customer Name and Address
  • Vendor Name and Address
  • Items and Deliverables (with their quantities)
  • Unit Price, and discounts, if any
  • Total amount
  • Tax component
  • Grand total
  • Signatures and bank details, if required
Source: PJM.com| Monthly Billing Statement Example
Source: PJM.com| Monthly Billing Statement Example


The larger billing process can be broken down into three parts.

  • Review Billing Information

Reviewing requires a business to collect and analyze all the information needed to create an invoice. It involves verifying all product codes and corresponding prices, verifying taxes, and adding freight charges, wherever applicable.

  • Generating Invoices

After printing a test invoice, the entire invoice batch is printed and then verified. For electronic billing, this process may be entirely paperless.

  • Sending Invoices

The invoice versions for customers are sent to them, while the retained copies are filed, generally by invoice number. Again, for electronic billing, this process may be conducted entirely paperless, over the internet.

Types of Billing

There are various types of billing mechanisms, and a business may offer just one or even all of these types.

  • Billing before delivery
  • Milestone Billing

As the name suggests, this type of billing method requires the completion of a milestone (which could be a particular event or a sub-contract). It is this milestone completion that is given a billing value. An invoice is generated and issued when this event occurs.

  • Progress Billing

In this billing method, invoices are generated in tandem with costs incurred on a routine, monthly, or bi-monthly basis. Therefore, cost recovery is complete before delivery.

  • Sub-line-item Billing

Here, invoices are generated as sub-items of a larger process (such as various parts of a construction process). Such a billing method helps strengthen cash flows.

  • Billing on Completion

This type of billing method is popular in cases with a fixed fee or a one-time service. The payment is made when a service has been provided, or a product or project is delivered. It may include variations such as the option for the customer to make a deposit.

  • Billing for on-going services

A recurring payment plan is often the best option for on-going services such as online subscriptions, software plans, etc. It ensures a consistent flow of cash into one’s business. The frequency may be weekly, monthly, or even longer depending on the nature of the service or cash flow expectations.

  • Prorated Billing

This particular type of billing charges customers based on the cost per day. Customers, therefore, only pay for the number of days that they used the service. In many cases, this can encourage more customers to decide to buy a service or a product because canceling earlier would not lead to overcharging.

How to Improve the Billing Process

For a small business, billing can be a tedious process. Being a crucial part of any business, it is imperative to have an efficient billing system in place.

  • Set Clear Payment Terms

Setting unambiguous payment terms on your invoices increases the likelihood of receiving quick payments. And as a business, you’d be well aware of how payment terms impact cash flow.

  • Automation

Most parts of the billing process can be automated using simple tools or software. This includes invoice generation, overdue invoice reminders, automated payments for recurring fees, etc. You can even use free invoice templates to speed up your billing.

  • Switch to Better Software

It seems to be a common (and justifiable) notion that using spreadsheets can be bad for business. It is not only time-consuming but also leaves room for error. Therefore, investing in a good billing software or billing system can prove to be extremely beneficial. In addition to essential billing tools, a software billing system can pack in ERP features or recurring payment options. Cloud-based invoicing software is also worth considering.

  • Intelligent Integrations

Expanding on the previous advice - it’s essential to pick billing or invoicing software that is open to integrations with other tools. Perhaps you’d like to integrate your CRM with your billing software. Or maybe you’d like it to integrate it with your email. The best billing software enables you to work faster and smarter with intelligent integrations that make billing easier and hassle-free.

Automated Billing Software is the way ahead

Conclusion

Obtaining timely and adequate customer payments is essential for any business. An efficient billing system forms the foundation for an integrated and streamlined payment collection process and is so crucial to accounting and bookkeping as well. Therefore, for a small business, billing often requires more investment (such as investing in billing or invoicing software) to improve efficiency and minimize losses.

The billing process, therefore, is as important as any other part of the business and should be a priority. There are multiple billing softwares available out there. Deskera is one of the most favoured cloud software when it comes to small business as it offers a very efficient and easy to use billing  and invoicing software for small businesses. For more on solutions on accounting for businesses, head over to Deskera.

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