Note 46: Triggering the Billing Cycle

Posted: 06 March 2008

The method for triggering the billing cycle can differ depending on the biller's size and the degree of homogeneity in their customer's billing frequency. Smaller billers may be able to process all their customers in one billing cycle executed once a month. Larger telecommunications companies run multiple billing runs each day to spread their substantial processing load across the month. A biller's customers may all be billed monthly, or there may be a mix of frequencies from weekly to quarterly.

When a customer's previous bill's billing cycle remains incomplete, that customer's next bill cannot commence. Scheduled bills for other customers may be triggered, but the customer's incomplete bill should delay its successors until it has finished. This is to avoid charges appearing on two bills and 'out of order' updates to databases. Sequential processing of bills also applies to interim and final bills. Final bills are less of an issue since the relationship with the customer is ending, but each biller must decide the business rules for scheduling interim bills close to scheduled regular billing.

Aside from regular billing, initial, interim and final bill processing must also be initiated in a timely manner. For billers who run more than one billing cycle a month, the start of each billing cycle must identify which of their customers will be selected for processing. Such a selection can select monthly customers (billed at this time each month), quarterly customers (billed in this month), and also any initial, interim and final bills that need to be processed.

Billers running multiple billing cycles each month can divide their customer base and assign a portion to each billing cycle. This spreads the processing load across the month (lowering the biller's infrastructure costs), and allows interim and final bills to be processed in a timely manner in the next billing cycle that commences.

Spreading the processing load in billing can reduce costs both in billing and across the biller's wider organisation. An example of these organisational benefits can be experienced where a biller operates a call centre receiving calls from customers about their bills. If bills are sent out in a staggered manner across the month, then the inquiries generated by those bills will be staggered as well. If all bills are sent out once a month, the inquiries generated by the bills can result in an extremely busy period in the days after the bills are sent (possibly with busy signals, delays and poor customer service) and fewer calls over the remainder of the month.

Building a call centre (and retaining the trained staff that operate it) for such a peak period, would result in high fixed costs that were underutilised the rest of the month. Spreading the load allows call volumes to be handled by a smaller call centre with a relatively predictable workload. Similar operational (im-)balances can occur in areas such as bill printing (printing to paper and the postal distribution), and cash flow management (regular fixed costs matched against regular customer payment cash flows).

Billers offering prepaid products may produce activity statements that detail the customer's transactions, but do not ask for payment. Since the biller has already received payment, activity statements can be produced with less urgency to a scheduled timetable with no cashflow or payment risks.

Deferred Bills

Whilst billers want to send all bills out without delay, there are some circumstances that can delay billing for specific customers. Bills may be deferred from billing cycles for reasons including:

Interim or regular bills may be temporarily (and automatically) deferred to allow in-progress billing to complete. Once the prior bill completes, the next billing cycle can extract and produce the customer's deferred bill.
Individual bills held for review before their distribution (as discussed later in these notes) will delay the completion of those customer's individual in-progress billing (the remainder of the billing cycle will complete and be distributed).
Accounts with known data defects (errors, corruption) may be deferred to avoid sending a bill with known problems, and provide time for the defects to be corrected. Once corrected the accounts can be re-enabled for processing.
Accounts undergoing migration between billing systems may be deferred until their details have been fully migrated to the new billing system. This approach can be applied on both the source (old) and target (new) billing systems, allowing the customer's data to be accurately in one place before the next bill is triggered.

Excessive use of billing deferrals is not a desirable action for a number of reasons including:

Sticker shock: Customers receive an unusually high bill because it includes a longer period for recurring charges and additional network usage. Whilst the customer's next bill will be correspondingly smaller, the higher amount due on this bill may cause payment difficulties, and customer annoyance (poor customer relations).
Transaction age: Transactions older than a certain age may be unbillable based on regulatory or contractual agreements. The longer a customer remains unbilled, the more of their charges may become unbillable resulting in lost revenue.
Credit risk: Customers not receiving their invoices may overspend, whether intentionally or accidentally, and this additional spending may result in debt that cannot be collected.
Cash flow: Depending on the relative sizes of the biller and the deferred customers' bills, the payments not received from customers may have a material effect on the biller's cash flow.

To reduce the financial impact of deferred bills, a report of customers remaining unbilled for extended periods can highlight the number, reasons and financial impacts being experienced. A sudden rise in the numbers can be proactively investigated, and the financial impacts of any problems assessed. For example, a report may highlight quarterly billing accounts remaining unbilled for longer than 105 days. The period might be reduced to 45 days if all accounts were billed monthly, or the delay may be tailored based on each customer's regular billing frequency.

Extract Frequency

Some billers will issue monthly bills to their entire customer base, whilst others will issue quarterly bills to the majority of their customer, reserving monthly billing for their largest customers. Issuing a bill has a relatively fixed processing cost for smaller customers, though the largest customer will vary depending on their size and network use. Along with the processing to produce the bill's detail, the costs associated with stationery and postal charges can form a material percentage of the total bill production costs.

If the total charges for (and related profit from) a bill are small, operational costs can be reduced by sending the customer their bill less frequently (i.e. quarterly). The bill's lower production and distribution costs must be balanced against the cash flow impact (delayed collections) and bad debt risk (three month's charges remaining unpaid).

Where a bill's value is large, the bill processing and distribution costs will form a lower percentage of the total bill, and the cash flow impact and bad debt risk will be higher. The biller may be able to justify a more frequent billing approach for these bills because the customer's network use can be turned into debt (and later cash), and doing so will provide an early warning of non-payment. If the customer does not pay their (monthly) bill, their network access can be terminated months earlier

Interim bills provide a mechanism whereby most customers can be billed quarterly, but, if their network use is unusually high, a bill can be generated to create collectible debt and an 'interim' payment. Customers that regularly generate high network use can have their billing frequency changed to monthly. Market segments expected to generate high-value bills can be established with monthly billing by a biller's default or mandatory policy.

Extracting larger (corporate) customers

Corporate customers with many accounts may receive discounts related to their total spending with the biller. To assist the calculation of the correct discount, and billing rates related to the customer's total spending, the customer's entire multi-account billing hierarchy may be extracted and processed together in the same billing cycle.

This approach allows all calculations for the customer's (large and/or complex) hierarchy to be performed across the same data on the same calculation date. This avoids situations where the customer's data must be 'normalised' to account for different billing periods across the customer's accounts, some of which have billed and others that are due to bill in the near future. As the number of accounts involved increases, partial period calculations can become difficult to calculate, and difficult for both the biller's and customer's staff to understand and accurately verify.

Discounts calculated based on total spending may be returned to the customer's account's bills and offset against the contributing spending, or the discounts may be collected (consolidated) on a central (head office) account for visibility.

Tags: Billing, Bill Extract, Initial, Interim, Final, Deferred