Billings

Billings refers to the total value of invoices issued by a company to its customers for goods delivered or services rendered during a specific period. This metric represents a company's sales activity before accounting for collections and is a critical measure for revenue tracking and cash flow forecasting.

How Billings Work

The Billings process typically follows these steps:

  1. Service/Product Delivery: The company provides products or services to customers.

  2. Invoice Generation: The accounting department creates invoices detailing the charges.

  3. Invoice Issuance: Invoices are sent to customers with payment terms (e.g., Net 30, Net 60).

  4. Billings Recognition: The total value of issued invoices is recorded as "Billings" for the period.

  5. Collection Process: The company follows up to collect payments according to terms.

  6. Revenue Recognition: Depending on accounting standards, revenue is recognized either at billing or upon collection.

Example of Billings in Action

Let's consider a practical example for a software-as-a-service (SaaS) company:

Monthly Billings Analysis for TechCloud, Inc. - March 2025

  • New customer contracts signed: 15 contracts

  • Total annual contract value: $900,000

  • Upfront billings (annual subscriptions): $600,000

  • Monthly billing contracts: $300,000 annual value ($25,000 monthly billings)

Billings breakdown for March:

  • Annual subscription billings: $600,000

  • Monthly subscription billings: $25,000

  • Professional services billings: $75,000

  • Total billings for March: $700,000

  • Accounts receivable beginning balance: $450,000

  • Plus: New billings: $700,000

  • Less: Collections: ($550,000)

  • Accounts receivable ending balance: $600,000

This example demonstrates how billings represent the company's sales activity for the month, while collections represent the actual cash inflow.

Billings vs. Revenue vs. Collections

It's important to understand the distinction between these closely related metrics:

  • Billings: Total value of invoices issued, representing sales activity

  • Revenue: Income recognized according to accounting principles (GAAP/IFRS), which may differ from billings due to revenue recognition rules

  • Collections: Actual cash received from customers, affecting cash flow

Differences typically arise due to:

  • Timing differences between billing and payment

  • Revenue recognition requirements (performance obligations)

  • Multi-period contracts with different billing and revenue recognition schedules

  • Advance billings for future services

Types of Billing Arrangements

Companies may employ various billing structures:

  • Upfront Billing: Full payment required at the beginning of service

  • Milestone Billing: Invoices issued upon completion of defined project phases

  • Subscription Billing: Regular recurring charges (monthly, quarterly, annual)

  • Usage-Based Billing: Charges based on actual consumption or usage

  • Time and Materials Billing: Invoices based on hours worked plus expenses

  • Retainer Billing: Fixed fee charged regularly with service delivery as needed

  • Progress Billing: Partial billings based on percentage of project completion

Key Billing Metrics

Organizations track several billing-related metrics:

  • Billings Growth Rate: Year-over-year or quarter-over-quarter growth in billings

  • Average Billing Size: Total billings divided by number of invoices

  • Days Sales Outstanding (DSO): Average time to collect after billing

  • Billing Efficiency: Ratio of billable to non-billable activities

  • Billing Realization Rate: Actual billings compared to potential billable value

  • Billing-to-Cash Cycle: Time from service delivery to cash collection

  • Billings Backlog: Contracted future billings not yet invoiced

Importance of Billings in Financial Analysis

Billings serve several crucial business purposes:

  • Cash Flow Forecasting: Predicts future cash collections

  • Sales Performance Measurement: Indicates market demand and sales effectiveness

  • Growth Trending: Shows business momentum, especially in subscription businesses

  • Revenue Visibility: Provides leading indicator of recognized revenue

  • Operational Planning: Informs resource allocation and capacity decisions

  • Investor Communications: Often reported as a key performance indicator (KPI)

Billings Management Best Practices

For effective billings management, follow these guidelines:

  1. Clear Terms: Establish and communicate explicit billing terms and conditions

  2. Prompt Invoicing: Issue invoices immediately after service delivery or on schedule

  3. Accuracy Focus: Ensure all invoices are correct to avoid payment delays

  4. Electronic Billing: Utilize electronic invoicing for faster delivery and processing

  5. Automated Follow-up: Implement systematic reminders for unpaid invoices

  6. Performance Tracking: Monitor billing metrics and collection efficiency

  7. Flexible Options: Offer multiple payment methods to facilitate collections

Modern financial management systems like Timber include comprehensive billing modules that automate the entire process from contract to invoice generation, reminders, and collections reporting.