What Are Billings? Key Differences From Revenue & Cash

Billings are a core financial activity for businesses, involving formal requests for payment from customers for goods delivered or services rendered. Understanding billings is essential for tracking what is owed and collecting payments, which is a critical link in a business’s financial health.

Understanding Billings

A billing is a formal request for payment issued by a business to a customer after goods or services have been provided. This request typically takes the form of an invoice or a statement of account, serving as a record of the transaction and indicating the amount due.

A typical billing document includes essential information to facilitate payment and record-keeping. This information encompasses customer details, an itemized list of the goods or services provided, quantities, and their corresponding prices. The total amount due, along with specific payment terms and the due date, are also prominently displayed. For example, payment terms might specify “Net 30,” meaning the payment is due within 30 days from the invoice date, or “Due Upon Receipt,” indicating immediate payment is expected.

Billings, Revenue, and Cash: Key Distinctions

Billings, revenue, and cash are distinct financial concepts, each playing a unique role in a business’s financial picture. Billings represent amounts formally requested from customers for goods or services, signifying money owed to the business. This amount is recorded as accounts receivable.

Revenue, also known as earned income, is recognized when goods are delivered or services are performed, regardless of whether a billing has been sent or payment received. Under the accrual basis of accounting, revenue is recorded when earned, ensuring income is matched to the period of economic activity. For instance, if a service is completed in January, the revenue is recognized in January, even if the invoice is sent later. This method provides a clearer view of a company’s financial performance.

Cash, in contrast, refers to the actual money received by the business. Cash inflow occurs when customers pay their bills, settling the amounts previously billed to them. The timing of cash receipt often differs from when revenue is recognized or a billing is issued. For example, a consulting firm might complete a project in January (revenue earned), send an invoice in February (billing issued), and receive payment in March (cash received). This sequence highlights that while all three terms relate to economic transactions, they represent different stages in the financial cycle of a business.

Common Billing Models

Businesses employ various billing models to align with the nature of their goods or services and customer relationships. One common approach is one-time or transactional billing, used for individual product sales or standalone services where a single payment is expected. This model is straightforward, typically involving an invoice for a specific purchase.

Another prevalent model is subscription or recurring billing, where customers are charged at regular intervals for ongoing services. This is typical for software as a service (SaaS), memberships, or utility services, providing a predictable revenue stream for businesses. Hourly billing is frequently used by service-based professions, such as consulting or legal services, where charges are based on the time spent delivering the service.

Project-based or fixed-price billing involves an agreed-upon total cost for a specific project, regardless of the time spent. This model provides cost certainty for the customer. Milestone billing is a variation often used for larger projects, where payments are tied to the completion of specific project phases or deliverables, allowing for incremental payments as work progresses.

The Billing Process

The billing process outlines the systematic steps a business follows to generate and manage its requests for payment. This process typically begins with the delivery of the service or shipment of goods to the customer. This point marks the completion of the performance obligation, which triggers the subsequent financial steps.

Following service delivery, the business collects all necessary information for the billing, such as hours worked, items sold, or agreed-upon project phases completed. This data collection is crucial for accurate invoicing. The next step involves invoice generation, where the formal request for payment is created, populating the document with the collected data, total amount due, and specified payment terms.

Once generated, the invoice is delivered to the customer through various methods, including email, traditional mail, or an online portal. This delivery formally notifies the customer of their payment obligation. The final stage involves payment tracking, where the business monitors the status of the billing, noting whether it is due, overdue, or paid, ensuring effective accounts receivable management.