What Is Advance Billing?
Advance billing is the practice of invoicing customers before the service period begins. It’s common in SaaS where subscriptions are billed annually or quarterly upfront.
Why Advance Billing is Important to Finance
- CFO: Advance billing improves cash flow and reduces billing ops frequency
- Financial Controller: Creates deferred revenue that must be recognized over time
- Revenue Operations: Enables flexible pricing and annual prepay incentives
- Customer Success: Reduces churn risk by locking in prepaid commitments
What is an Example of Advance Billing?
A customer signs a SaaS contract for 12 months at a monthly price of $ 10,000. With advance billing, the customer is invoiced for the full contract amount of $120K in advance rather than being billed monthly. The SaaS vendor collects the $120K up front with the prepayment. However, the SaaS company cannot recognize the revenue immediately under ASC 606. Most of the revenue is deferred and $10K is recognized each month throughout the contract term.
What are the Challenges with Advance Billing?
Billing a high volume of customers in advance without automation will create many operational challenges for finance teams. Examples of challenges caused by advance billing without automation include misaligned revenue schedules, delayed collections, or customer confusion over billing terms. It also complicates ARR reporting and cash flow forecasting if not tracked properly.
How Ordway Billing Software automates Advance Billing
- Supports many different advance billing frequencies, including annual, quarterly, monthly
- Automatically creates deferred revenue schedules tied to each invoice
- Pushes summary journal entries data to ERP or accounting system
- Handles renewals, early terminations, and prepay incentives cleanly
- Links advance invoices to subscription terms and renewal contracts
Related Questions and Answers
Is advance billing the same as deferred revenue?
No. Advance billing is the action of invoicing upfront. Deferred revenue is the liability recorded until revenue is earned.
Do customers always prepay in advance billing?
Often yes, but not always. Billing and payment timing can be decoupled.
How does advanced billing affect SaaS metrics?
It boosts cash early but doesn’t accelerate revenue. ARR and rev rec still follow delivery cadence.
Other Glossary Terms
Subscription Pause
Credit Memo vs Debit Memo
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