Billing Terms

Annual recurring revenue (ARR) is an operating metric that shows the annualized value of a company's active recurring contracts at a point in time. It is not defined in US GAAP, is not a GAAP measure, and is not the same as revenue recognized under ASC 606.

A billing cycle is the recurring period for which charges are collected and invoiced – for example, monthly, quarterly, or annually – together with the date on which the invoice is created.

A billing document is the SAP document that records an invoice, credit memo, debit memo, or cancellation for a customer. It is typically created in SAP SD based on sales orders or deliveries.

A billing plan in SAP SD defines when and in what amounts a sales document item is billed – instead of billing everything at once after delivery.

Consignment is an arrangement in which a seller places goods at a customer's or dealer's location while keeping ownership and control until the goods are used or sold on.

A credit memo is a document that reduces the amount a customer owes – for example, because of a price correction, a return, a complaint, or a rebate.

Deferred revenue is consideration received or billed before the related goods or services have been delivered. It is recognized as revenue when the company performs.

A down payment is a payment made by the customer before the company delivers goods or performs services. It is common for large orders, custom equipment, and long-term projects.

A drop shipment is a sale in which the seller does not ship from its own stock; instead, a third-party supplier delivers the goods directly to the seller's customer.

Dunning is the structured process of reminding customers about overdue payments and escalating collection steps if payment is not received.

E-invoicing is the exchange of invoices in a structured, machine-readable electronic format between the systems of supplier and customer – as opposed to paper invoices or PDF files sent by email.

Equipment-as-a-Service (EaaS) is a business model in which a provider places equipment at the customer's site, maintains it, and charges a recurring fee – often combined with a usage component such as hours run or units produced – instead of selling the equipment outright.

An installment plan is an agreement that allows a customer to settle open receivables in several scheduled partial payments instead of one payment on the original due date.

Mediation is the processing step that collects raw usage data from technical sources and converts it into clean, standardized records that can be rated and billed.

Milestone billing is a billing approach in which the customer is invoiced in installments when defined project milestones are reached or on agreed dates.

A minimum commitment is a contractual obligation of the customer to pay at least a defined amount – or to purchase at least a defined volume – over a period, regardless of actual usage.

Prepaid and postpaid describe when a customer pays in relation to consumption: before using a service (prepaid) or after using it (postpaid).

Proration is the calculation of a charge for a partial billing period – for example, when a subscription starts, ends, or changes in the middle of a billing cycle.

Rating is the process of assigning a price to a usage event or charge based on the customer's contract and price plan – for example, turning "500 units consumed" into a monetary amount.

A rebate is a retrospective price reduction a seller grants to a customer when agreed conditions are met, typically a purchase volume or revenue threshold over a defined period.

Recurring billing is the automatic, repeated invoicing of customers at regular intervals for ongoing services or access – such as subscriptions, maintenance contracts, rentals, or leases.

Revenue leakage is the loss of revenue a company is entitled to – because goods or services are delivered but not billed, billed at the wrong price, or not collected.

The right to invoice practical expedient allows a company to recognize revenue in the amount it has a right to invoice, if that amount corresponds directly to the value of the company's performance completed to date.

Tiered pricing is a pricing model in which the price per unit changes depending on the quantity purchased or consumed within a period.

Unbilled revenue is revenue that has been recognized because the company has performed, but for which no invoice has yet been issued.

Usage-based billing is a pricing and billing model in which customers are charged based on their actual consumption – for example, per transaction, per unit, per hour of operation, or per volume of data.