How companies bill for their services?

Question

I'm doing an accounting software as part of a homework project, targetting SMB to print delivery forms and invoices for physical products and services (services such as laundry). But I don't know when companies bill (print and send invoices) their customers for services; do they bill by monthly usage or by the start of the next month? What are the other methods of billing?

Answer 1

There is no single billing method used by all service companies. It depends on the type of service and the agreement with the customer.

Some common methods are:

1. Immediate billing: An invoice is created when the service is completed. A laundry or repair business might use this method.
2. Periodic billing: Services provided during a period are accumulated and invoiced weekly, monthly, etc. For example, all services performed during May might appear on one invoice issued at the end of May or beginning of June.
3. Advance billing: The customer is billed before the service period begins. This is common with subscriptions, memberships, and retainers.
4. Milestone/progress billing: For longer projects, the customer is invoiced when particular stages are completed or according to percentage of completion.
5. Recurring fixed billing: The customer pays the same amount each billing period regardless of individual transactions.
6. Usage-based billing: The amount depends on how much of the service the customer actually used during the billing period.

For your accounting-software project, it would therefore make sense to allow the user to select a billing frequency and billing method rather than assuming that every business invoices at the beginning or end of each month. You should also distinguish the service date, invoice date, due date, and payment date, because these can all be different.