What is the Billing Cycle?
The billing cycle is the period between the last billing date and the current billing date for any sale of goods or provision of services. The length of billing cycles vary depending on the lender or service provider, but usually, it lasts from 20 to 45 days.
To attract as many customers as possible for servicing, banks come up with a variety of new products. It also applies to credit cards with an interest-free period of using bank money. Credit cards with a grace period (interest-free) take up the largest share of the market.
The grace period is the usage of borrowed money without paying interest for the period specified in the terms of the agreement. Many banks extend the grace period to non-cash transactions only, while others include both cashless payments and ATM withdrawals.
- The billing cycle is the period between two consecutive payments for a given service, often lasting 20-25 days.
- The payment period depends on the bank’s terms and conditions; it can be calculated from the date of the first purchase or a fixed calendar date.
- The period during which all credit card costs are taken into account is called the calculation period. When the calculation period comes to an end, the billing cycle begins.
Example of Billing Cycle
After purchasing a TV subscription, the customer must pay an agreed amount every month to establish and keep the service. A TV company can start the billing cycle on the first day of the month and end on the 30th day. TV providers can set from the 15th of the month to the 15th of the next month. Billing cycles vary in length from 20 to 45 days, depending on the credit card issuer or service provider.
The type of billing cycle above can make it easier to maintain accounting records, as well as allow companies to remember the payment terms. They can also use a rolling billing cycle. A cable TV provider can set up a customer’s billing cycle according to when the customer started the service.
Calculation Period and Billing Cycle
The period during which all credit card costs are taken into account is called the calculation period. It includes both non-cash transactions and cash withdrawals. It lasts from the moment the card statement is generated until the payment date. When the calculation period comes to an end, the billing cycle begins.
The calculation period is the period during which the customers need to settle all expenses spent on the card without interest or make a mandatory payment. If the card limit is fully restored during the payment period and the debt is fully repaid, the client does not receive any commission or interest.
How to Find Your Billing Cycle?
Keeping up with your payment cycle can be difficult, as the dates do not coincide with the beginning and end of the calendar month. The customer can check their latest credit card statement or online account to find their billing cycle. If they need to calculate the number of days in the payment cycle, count the number of days between the beginning and the last payment cycle.
For example, if the last payment cycle was from January 5, 2020 to February 1, 2020, the payment cycle will be 27 days. Using the information, the credit card user can calculate the end of the next payment cycle. Count down 27 days from February 1 to February 28, 2020.
Billing Period with a Fixed Date
In an attempt to simplify their work and life for the client, some credit institutions set a fixed date for the end of the payment period. In doing so, they do not consider the date of registration of the credit agreement, as well as the beginning of the client’s usage of the card.
Banks often take the first day of any month as the reference date. Therefore, the payment period ends at the end of the month, approximately 22-25 days.
Determination of Minimum Payments
When a customer is unable to repay the entire debt to the bank, they need to make a minimum payment on the card after the interest-free period.
In some banks, the payment amount is calculated from the spent amount of the credit limit or about 5%-10% of the total amount. Other banks define a specific contribution in cash.
Crediting the minimum payment allows the customer to continue using credit money and keep their good borrower status for the bank.
CFI is the official provider of the Commercial Banking & Credit Analyst (CBCA)™ certification program, designed to transform anyone into a world-class financial analyst.
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