What Is Monthly Billing? Definition, Examples, Pros & Cons, and Best Practices
Gain a clear understanding of monthly billing - from the billing cycle and key components to proven best practices.
What Is Monthly Billing?
Monthly billing sets up a payment to happen every thirty days. Customers can be charged in one of two ways: either the fee is automatically taken from their card or account, or they receive a monthly invoice that they must pay manually. Essentially, billing is the calculation of the fee, and invoicing is sending the document asking for the payment.
How Monthly Billing Works (Billing Cycle Basics)
- Billing cycle: This is a recurring period during which charges are calculated and collected. The cycle begins on a set date each month and ends one month later. At the end of the cycle, an invoice is issued or an automatic payment is processed. A payment date is the deadline by which the customer must pay for that cycle.
- Proration: This means how charges are adjusted when a customer upgrades or downgrades a plan mid-month. You only pay for the portion of each plan you actually use: if you upgrade, you’re charged for the remaining time on the new plan and credited for unused time on the old plan; if you downgrade, you receive a credit or adjustment for the remaining days of the higher plan.
- Trials & grace periods: Trials and grace periods make the monthly billing process smoother, giving customers time to explore the service. When the trial ends (the conversion day), the account automatically switches to a paid plan, and the first monthly payment is charged or invoiced. A grace period may follow a missed or delayed payment, allowing customers to keep access while they complete the payment.
- Taxes & compliance: Taxes such as VAT, GST, or sales tax are applied to monthly invoices based on the customer’s billing location and local tax laws. All applicable taxes are automatically calculated and shown clearly on each monthly invoice. This ensure compliance and transparency, while businesses can manage recurring revenue without worrying about errors or penalties.
- Discounts & coupons: Discounts and coupons allow businesses to offer reduced prices or special promotions on recurring monthly charges. They help attract new customers, reward loyalty, and encourage upgrades while ensuring the billing system applies the savings accurately.
Why Monthly Billing Matters
Predictable Cash Flow & MRR Forecasting
Monthly billing ensures consistent revenue, making cash flow management and MRR (Monthly Recurring Revenue) forecasting easier. It helps businesses plan, budget, and grow with confidence.
Lower Commitment vs Annual (Conversion & Trial Fit)
With monthly billing, customers can start with smaller, recurring payments, reducing risk and making trial conversion easier. Annual plans require a bigger upfront investment but reward commitment with savings.
Easier Budgeting for Customers
Monthly billing allows customers to plan and manage their budget easier, since costs are spread over smaller, predictable payments. Instead of paying a large upfront fee, they know exactly how much they will pay each month.
Faster Feedback Loops (Pricing & Packaging Experiments)
Businesses use monthly billing to rapidly test pricing and packaging changes. Since customer payments occur monthly, companies can adjust their offerings and see the immediate effect on subscriptions, churn, and revenue.
Reduced Upfront Friction, But Higher Churn Risk
Monthly billing makes it easy for customers to start with smaller payments, but shorter commitments can lead to higher churn. Businesses may gain more clients, but there will be greater customer turnover than it would with year-long contracts.
Key Components of Monthly Billing
Pricing & Packaging (tiers, add-ons)
When setting up monthly billing, businesses need to carefully design pricing and packaging to meet customer needs and drive revenue. Properly structuring pricing and packaging is crucial for maximizing conversions, upsells, and long-term customer satisfaction.
Billing Dates & Cut-off Rules
In monthly billing, billing dates set when invoices are issued and payments are due, while cut-off rules determine what usage or changes are included. Clear rules ensure accurate invoices, smooth cash flow, and customer transparency.
Proration Logic (mid-cycle changes)
In monthly billing, proration adjusts charges so customers pay only for the part of a plan they use when changes happen mid-cycle. This ensures fair, accurate billing while allowing businesses to handle plan modifications at any time.
Invoicing & Payment Methods (card, bank, wallet)
In monthly billing, invoices detail each month’s charges, and payments can be made via card, bank transfer, or digital wallet. Multiple options make payment easier for customers and help ensure consistent cash flow.
Taxes, Discounts, Credits
Monthly billing implies monthly invoices. Monthly invoices may include taxes based on location, discounts or promo codes, and credits for proration or adjustments, ensuring accurate and transparent billing.
Dunning & Retries (failed payments)
In monthly billing, dunning is the process of managing failed or missed payments. Automated retry attempts are made to collect payment, and customers are notified of issues. This recovers revenue, reduces churn, and keeps accounts up to date.
Reporting & Reconciliation (MRR, ARPU, churn, aging)
Monthly billing requires accurate reporting and reconciliation to track business performance. It tracks key metrics like MRR, ARPU, churn, and aging. This ensures accurate finances, monitor performance, and support business decisions.
Monthly vs Annual vs Usage-Based: Which to Choose?
- Monthly: charges customers every month, making it easy to start but with a higher risk of cancellations.
- Annual: requires a single upfront yearly payment, boosting cash flow and LTV but raising the purchase barrier.
- Usage-based/Hybrid: charges customers based on usage for fair pricing but makes revenue forecasting harder.
How to Implement Monthly Billing (Step-by-Step)
Practical instructions:
- Define pricing and discount policies.
- Choose your billing process and proration rules.
- Set up invoicing (templates, numbering, taxes).
- Launch payment methods and dunning.
- Agree on payment term policies (NET-terms).
- Configure reporting (MRR, payment cycles, accounts receivable).
- Test scenarios: upgrading or downgrading, issuing refunds, and pausing subscriptions.
Best Practices for Monthly Billing
Following practical best practices helps businesses reduce errors, manage failed payments, and track performance efficiently. Let's see what they are:
- Transparent billing dates and proration displayed at checkout.
- Automatic invoice and reminder emails to keep customers informed.
- 2–3 stages of dunning with different messages for failed payments.
- Clear refund and partial credit policies to handle adjustments fairly.
- Monitoring failed payments and failure reason codes.
- Regular reconciliation of invoices and payments.
- Metrics: MRR, Expansion/Contraction, Net Revenue Retention, Aging A/R.
Monthly Billing Examples
- SaaS: Fixed monthly rate with optional add-ons and automatic payments.
- Agencies: Monthly retainer plus hourly overages billed by invoice.
- Service companies: Monthly maintenance or support plans (support/care plans).
TMetric for Monthly Billing Workflows
Here’s how TMetric fits into monthly billing processes with its key features:
- Tracking time and expenses by projects/clients throughout the month.
- Billing by rates (billable rates), project budgets, and overage control.
- Invoicing: generating monthly invoices based on tracked data (exporting to PDF/CSV and sending to the client).
- Expenses: manually adding expenses to the invoice along with tracked hours.
- Reports: summaries by employees or projects for reconciliation with payments.
- Integrations: work alongside your project management and accounting stack; synchronize time with accounting tools.
Conclusion
Monthly billing is a recurring system that automatically charges customers each month, handling taxes, discounts, invoices, and proration for mid-cycle plan changes. Using digital tools instead of manual processes ensures accurate invoicing, streamlined payments, and efficient operations, making billing simpler for everyone.
Whether you bill clients monthly or run a subscription, track time and expenses accurately and invoice in minutes with TMetric - try it free.