Billing in arrears is one of two ways businesses typically bill customers. In deciding how you should you bill your customers, familiarizing yourself with billing in arrears is a helpful step before setting up billing. In this article we will go over what it means to be paid in arrears.
What does it mean to be paid in arrears?
In billing, there are two basic options: billing in advance and billing in arrears. Billing in arrears simply means that you bill your customers after the job is complete.
Why would I want to bill in arrears?
Billing in arrears is a great option if you don’t want to deal with refunds. It also works well if the consumption of the consumer is unknown. As a consumer, you most likely pay your water and phone bills in arrears. For example, you consume water or data respectively and then the respective companies bill you after you have used their product or service. This is the most efficient billing method for these companies because if they had customers pre-pay up front they may overcharge their customers and then have to issue a refund, or they may undercharge and have to issue multiple bills. For these types of companies, billing in arrears is the most efficient for them and their customers.
Pros and cons of billing in arrears
With all business decisions there are pros and cons you must consider. Here are the things you need to consider to determine if billing in arrears is right for your business.
The pros of billing in arrears include:
- Delivers flexibility to your business and your customers
- Limits the amount of refunds your company will need to process
- Allows your business to get paid in full for all products or services you provided for the customer
The cons of billing in arrears include:
- You delay receiving payment which means less cash in your business
- You may have to set up processes to remind customers to pay
- Your company risks not getting paid by your customer
Mitigating the Risks of Billing in Arrears
If you’re concerned with the cons of billing in arrears, here are some ways you can mitigate the risks. First, you can check the credit of your customers to make sure they are trustworthy and have a high probability of paying their bills. Second, to help manage cash flow in your business, you can require a deposit or down payment. Finally, you can use tools like PaySimple and easily track your invoices and resend them with the click of a button or easily set up a recurring payment schedule.
How to Bill in Arrears with PaySimple
If you use PaySimple and want to bill in arrears, the steps are easy. All you need to do is go to your settings page, and then under “billing preferences” and enable the “billing in arrears” option. Click here to get a step-by-step tutorial with images. Once you’ve enabled the ability to bill in arrears you’ll need to manage your billing schedules that bill in arrears. This tutorial walks you through the simple steps to billing in arrears.