What is Payment Cycle and Billing Cycle? Meaning and Definition

The payment cycle has certainly often occurred in your daily life. Payment is something that cannot be avoided even every day. Because every day everyone needs goods or services. Until there was a process of purchasing the goods and services he needed.

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Through this purchase, there will also be a process of paying for goods and services that have been purchased. So it can be said that the payment cycle starts from the existence of an action or activity of purchasing goods or services.

Payment Cycle Components

What is Payment Cycle and Billing Cycle? Meaning and Definition

1. Purchase order

In a payment cycle, there must be a purchase order. Even this cycle begins with the activity of purchase orders. Everyone who wants an item or service certainly places a purchase order. Later all your orders will be processed so that the purchase process can occur.

So the purchase order that appears after the purchase request will become a document. In this purchase order document, there is an identification of the number of products or services that you want to buy. Of course, this document must be re-checked so that there is no error in recording purchase orders from customers.

2. Receipt of goods or services

From the purchase order, there is a process of receiving goods or services. Here comes the receipt report in the document. Generally, this document is made when the goods have been received. Here every time you need to check the goods received.

This check usually includes the number of items received. Not to forget that the receipt document for the goods is also included the date of receipt. In addition, it is also necessary to include some other relevant data.

3. Recognition of obligations

In purchases that lead to payment, there is also an acknowledgment of obligations. Moreover, when the purchase is made with a payment system in the form of credit or installments. The recognition of this obligation occurs with a certain flow. Starting from the existence of a purchase transaction file that includes all acquisitions in a period.

Furthermore, there is also a supplier invoice which is a document that inclusion of the number of goods and services received as well as the price and the terms of the cash deduction. There are also debit memos and vouchers as well as files and balance sheets of accounts payable or accounts that are also part of the payment cycle.

4. Bookkeeping of cash expenditures

In the last stage, there is bookkeeping of cash expenditures which usually consists of checks and transaction files, and journals. These three are related to the process of issuing cash to make payments for goods or services received. Of course, the company involves several other things to meet the books of these cash expenditures. For example, the use of computer equipment to record at a certain period.

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Payment Cycle Objectives

Every payment cycle that occurs must be accompanied by a certain purpose. One of them is the purpose of obtaining information for both the buyer and seller. Buyers can find out in more detail what was purchased and then do a cash check. In addition, sellers can also know about what products have been sold outside and how the cash flow is.

The next goal is to evaluate other things after the payment process. This evaluation includes checking what are affected by the acquisition of goods and services. In addition, an evaluation is also carried out on cash expenditures presented with accounting principles following the procedure.

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Transactions in the Payment Cycle

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1. Obtaining goods or services

In the payment cycle, you may wonder what transactions are happening here. The main thing that happens in the transaction is obtaining goods and services. Of course, goods and services obtain after the buyer places an order for goods. Don’t forget to also check the goods when receiving the goods. It needs to be done to avoid errors in the receipt of the ordered goods.

2. Issuing cash

After receiving the goods or services following the order, then a cash expenditure transaction occurs. The process of issuing cash will affect the cash of buyers and sellers. Of course, the buyer’s cash balance will be reduced if the payment is made in cash. Meanwhile, the seller’s cash will increase if the sale ends with a cash payment.

3. Obtaining returns and purchase discounts

In the last stage, there will also be part of the other transaction. This process continues to the stage of obtaining returns for the buyer. The return gain occurs after payment which is usually also accompanied by the acquisition of a purchase reserve. Especially if the process of purchasing goods is carried out in very large quantities.

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In addition, there are also purchase discounts that you can also get when making a payment process. Purchase discounts are usually also given if the purchase occurs in bulk.

The payment cycle is happening in a business. Every type of business around you must have placed an order for goods or services. So that the cycle that occurs in the payment process can be found in each company. With this cycle, it is hoped that the company can eventually develop its business.

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Of course, this cycle must run following existing accounting principles and following procedures. Then the purpose of this cycle will be achieved.

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