- Advance Billing: Customers pay before they receive a service.
- Arrear Billing: Customers pay after they have used a service.
Recurring pricing follows a fixed billing cycle—monthly, quarterly, or more. Here, businesses decide whether to charge before or after each cycle.

- Advance billing
- In advance billing, customers pay before the billing cycle starts, similar to a prepaid mobile plan where you recharge upfront before making calls or using data.In advance billing, customers pay before the billing cycle starts, similar to a prepaid mobile plan where you recharge upfront before making calls or using data.
Example:- A SaaS company charges $100 on the 1st of every month for access throughout the month.
- A B2B software provider offers an annual plan where customers pay for 12 months in advance.
- Why businesses use advance billing?
- Predictable revenue – Ensures cash flow before delivering the service.
- No unpaid invoices – Customers pay upfront, reducing collection risks.
- Customers expect it – Just like prepaid plans, SaaS subscriptions are commonly prepaid.
- In advance billing, customers pay before the billing cycle starts, similar to a prepaid mobile plan where you recharge upfront before making calls or using data.In advance billing, customers pay before the billing cycle starts, similar to a prepaid mobile plan where you recharge upfront before making calls or using data.
- Arrear billing
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In arrear billing, customers use the service first and pay later, just like postpaid mobile plans where you get an invoice at the end of the month.
Example:
- A company provides access to a software platform and invoices customers at the end of the month for that period’s access.
- An enterprise SaaS provider allows customers to use the service for a quarter and then pays via Net-30 terms.
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Why businesses use arrear billing?
- Common in enterprise sales – B2B customers often expect Net-30/Net-60 payment terms.
- Supports flexible contracts – Customers commit upfront but settle payments later.
- Better for relationship-driven sales – Businesses may delay billing to remove friction in customer acquisition.
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In arrear billing, customers use the service first and pay later, just like postpaid mobile plans where you get an invoice at the end of the month.
Example:
Usage-based pricing follows a metered model, where charges depend on how much of a service is consumed. The common assumption is that usage must always be billed in arrears, but that’s not necessarily the case.

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Advance billing
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Advance billing is also used in usage-based pricing, especially in credit-based or commit-based models, similar to how users buy a data pack upfront before using mobile internet.
Example:
- Prepaid Credits: An AI API charges $500 upfront for 1M tokens, which customers use over time.
- Commit-Based Pricing: A cloud provider requires a minimum spend of $10,000/month, paid upfront, regardless of actual usage.
- Hybrid Prepaid Model: A SaaS tool sells prepaid API credits, but if the user exceeds the limit, additional usage is billed in arrears.
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Why businesses use advance billing for usage?
- Guaranteed cash flow – Payments are received before service usage.
- Lowers default risk – Eliminates unpaid bills from overconsumption.
- Encourages commitment – Customers commit to volume usage, reducing churn.
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Advance billing is also used in usage-based pricing, especially in credit-based or commit-based models, similar to how users buy a data pack upfront before using mobile internet.
Example:
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Arrear billing
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This is the standard choice for pay-as-you-go models, where customers use the service first and are billed later, just like a postpaid mobile data plan.
Example:
- A cloud provider (AWS, Azure) charges at the end of each month based on actual compute/storage usage.
- A telecom provider bills customers at the end of the month for call duration, data usage, and SMS count.
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Why businesses use arrear billing?
- Customers pay only for what they use – No need to estimate usage in advance.
- Works well for unpredictable usage – Suitable for cloud services and pay-as-you-go models.
- Preferred by enterprise clients – Many businesses expect to be billed after consumption
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This is the standard choice for pay-as-you-go models, where customers use the service first and are billed later, just like a postpaid mobile data plan.
Example: