Billing Management: #4 Negate Risk Free with Advances
In the last post, we explored how unbilled charges accumulate before being invoiced. But what happens when businesses need money before service begins?
Picture this: A construction company takes on a $500,000 commercial building project expected to last 12 months. The first step is sending the client a detailed quote. Once accepted, the builder requires a 20% advance before breaking ground. This advance payment doesn't represent complete work; it secures raw materials, labour, and permits to get the project moving. The client feels reassured that the project will start on schedule, while the builder gains the cash flow needed to set everything in motion.
This is the essence of advance billing. Unlike unbilled charges raised after usage or delivery, advance billing ensures businesses have funds available before or during service execution, reducing the risk and ensuring smooth operations.
This post will explore the nuances of advance billing and the best way to handle it.
Types of Advances
Across industries, businesses collect advances in different ways depending on their needs: Advance Invoices, Security Deposits or Retainers, Prepaid Subscriptions, Down Payments, Reservation or Booking Advances, and so on. Though these advances carry different names and practices, they all represent the same principle: to secure funds upfront before service fulfilment.
When do businesses need/use Advance Billing?
Businesses rely on advance billing in two situations:
Before a Project or Subscription Begins- Customers agree to pay in advance, securing their commitment and giving the business working capital.
Ahead of a Billing Cycle- Customers make payment before the cycle starts, allowing businesses to run smoothly with guaranteed funds.
Let's look at some real-time use cases where Advances becomes handy.
A corporate client plans a $50,000 retreat at a luxury resort six months in advance. To confirm the booking, reserve rooms, and coordinate vendors, the resort requires a 20% upfront payment. Without this, the business would risk blocking dates without certainty of the client's commitment. By collecting advance payment, the resort secures the funds and the assurance that the event will occur.
A consulting firm signs a $120,000 strategic engagement with a client. Before the project begins, the firm must dedicate senior consultants, purchase specialized research reports, and reshuffle schedules. Covering these costs and securing the client's commitment requires a 30% payment before the project process. This advance ensures the consulting team can jump into the work with resources ready rather than worrying about delayed payments or last-minute cancellations.
A SaaS platform charges $2000 per month for its enterprise plan. Instead of paying month by month, a client chooses to prepay the entire year for $24,000. This advance means guaranteed revenue and reduces churn risk for the SaaS provider. For the client, it simplifies budgeting and often comes with a cost benefit or a discount. The advance serves as a year-long commitment on both sides.
An education company launches a six-month course at $500 per month. Before the end of the month, the training institute sends a payment link to ensure that students pay ahead of the renewal cycle. This advance confirms students' continuity and allows the institute to plan the resources properly.
Beyond the four different businesses, advances or credits are vital in Construction and infrastructure, Professional services, Education and training, Healthcare, Travel agencies, and many more.
The first and second scenarios are one-time deliverable tasks: a one-time booking and a consulting project. They require an advance invoice to collect payment, which will be adjusted against the total amount. This invoice should not necessarily be part of the usual invoice, as it will be applied against the total when the service is delivered.
When you look at the other two scenarios, they are subscription-based and typically billed either ahead of the billing cycle or as an advance while the subscription is in progress.
Bail out with Zoho Billing
Across these cases, businesses face two recurring needs:
Sometimes advances must be invoiced upfront- for cases like consulting retainers or SaaS prepayments.
Sometimes, advances are commitment payments held as credits, such as event deposits, manufacturing down payments, or hospitality booking advances.
Zoho Billing's Advance Billing & Retainers are carefully built to handle:
- Retainer Invoice for One-time & Projects: Businesses can raise invoices for upfront retainers, record the payment, and apply it to the final bill.
- Advance Invoices: Businesses can raise a valid taxable invoice for upfront payment and track it until adjusted.
- Advance Payment Request: Businesses can collect money securely through a payment link as credits and apply it later to the final bill.
Zoho Billing stands out because retainers can be applied to an invoice anytime it is created. On the other hand, in a subscription-based ecosystem, advanced billing does not disrupt the regular billing cycle. Invoices are still raised on schedule, monthly, quarterly, or annually.
The difference lies in how payments are applied. Advances are automatically adjusted against invoices, ensuring that businesses always receive funds in advance while customers continue to receive their regular bills accordingly.
Adopting advanced billing allows businesses to create financial stability and secure customer commitment early on. This naturally sets the stage for usage-based billing, where charges depend on actual consumption. Unbilled charges, advance billing, and usage billing complete the billing spectrum for modern revenue management using Zoho Billing.
Topic Participants
Hari | Zoho Billing
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