What is it?

 

Arrears invoicing is when a company sends a bill to a customer after providing a good or service, based on the actual usage or work completed. This is in contrast to pre-paid or advance billing, where payment is collected beforehand. 
 
How it works

  • Service first: The company provides the service or product upfront.

  • Invoice later: After the service is rendered or the billing period ends, an invoice is created and sent to the customer. 

  • Payment: The customer pays the invoice, which can be immediately after receiving it or at a later, agreed-upon date

Example in TekStack

 

In this example, an organization contracts out full time employees (FTEs) to SaaS companies to complete various implementation project tasks. Customers are billed for FTEs on a monthly basis at a flat rate of $31200.00 per year per FTE ($2600.00 per month per FTE). 

 

In TekStack, there is a product set up with the following details: 
1. Unit = 1-year term (each FTE is considered a  yearly subscription).
2. Price per unit = $31,200 ($2600 monthly price). 
3. Subscription start = opportunity close date. 
4. Invoice schedule = monthly, in-arrears. 
 

Step-by-Step

 

Add the subscription to the Opportunity. Note that the unit price can be adjusted here if necessary.

 

 

Note that the invoice start date = Opportunity Close Date and schedule = monthly in arrears.

 

The subscription start date is also the Opportunity Close Date and the renewal method is automatic. This can be changed to "Opportunity" using the drop down arrow on the Renewal Method field. This will generate an opportunity for the renewal.

 

 

The subscription is now visible in the Products & Services tab on the Opportunity. Click on the record to review the details.

 

The quantity and price can be adjusted via the Pricing tab. Totals will automatically calculate based on price and quantity values.

 

 

In this example a close date of July 1st is selected and current date was in September. A past date is used in order to trigger invoices to generate.

 

With it being September, two invoice lines will be created to create when the opportunity is closed-won. One invoice for the month of July, and one invoice for the month of August.

 

If a date in the month of September has been used as the close date, the first invoice would generate in mid-October with the “monthly in-arrears” invoicing schedule set.

 

 

After closing the opportunity as Won, click the “Generate Order” button to start the subscription and create the order and invoices. 

 

 

Click the record in the Opportunity Order field to open the Order.

 

 

Select the Invoices tab on the Order record. The two in-arrears invoices have been created - one for July (August 3 invoice) and one for August (September 3 invoice).

 

 

Click on an invoice to view its details. From here, the invoice date and status reason can be adjusted. The invoice line with the monthly values is available at the bottom of the screen. 

 

Values on the invoice line can be edited on each invoice if necessary, such as the quantity and price. For example, perhaps only 8 FTEs were used in the month of July. The quantity could be adjusted to 8 and TekStack will automatically re-calculate the total amount.

 

The price could also be edited. For example, perhaps for the month of July, a 10% discount is to be applied. The Price could be adjusted to $2340 and TekStack will re-calculate total values.

 

 

Keywords: in-arrears, invoice, revenue, order