Bills come due based on a specific billing cycle. The term, billing cycle, according to the Truth in Lending Regulations, means the interval between the days or dates of regular periodic statements. The regulations state that the intervals of the cycle should be equal and no longer than three months. That leaves a lot of leeway in how companies that bill you on a regular basis interpret their cycles.
Tip
The length of a billing cycle varies by company.
Who Uses a Billing Cycle?
Think about the bills you pay and when you pay them. Credit cards accounts, gas and electric bills, cable and Internet, mortgage payments, auto insurance, water and sewage and life insurance companies all bill on a cycle. The billing cycle is always spelled out the agreement you sign when choosing to do business with a company. The billing cycle is part just one element of the terms of your arrangement with the company. Credit card accounts, for example, also assign you an interest rate, a credit limit, and spell out when late fees are due.
Length of a Billing Cycles
Not every billing cycle is the same. A billing cycle can run 30 days for your VISA credit card or between 25 to 35 days for your electricity utilities billing cycle in Texas. Consider the effect of a credit card billing cycle of 28 days versus a 30-day cycle. With the 28-day cycle, you will have 13 billing cycles during the year instead of 12 on a normal monthly billing cycle. The extra payment per year often goes unnoticed by most consumers.
Impact of Shorter Cycles
Billing cycles are never arbitrarily determined. Most companies calculate the optimum billing cycle for their customers to produce the best return for their business. A shorter billing cycle can be advantageous for a number of reasons. They can collect more money, quicker. They can also use the shorter billing cycle to reduce interest rates enough to be more competitive.
Two-cycle Billing
Most people are used to accounts that bill on a one-month basis. That is, you buy something on credit this month and the payment is due the next month. A nifty accounting trick called two-cycle billing serves to reward customers with increasing balances, while penalizing consumers who reduce their balance from one month to the next. Credit card companies often use this method of billing, and if you suspect your account's is handled this way, take a look at the terms and agreement for the account. If two-cycle billing is used, it must explained in detail, by law, in detail.