Deferred Billing

What is Deferred Billing?

Deferred billing is a payment method that allows customers to purchase a product or service and delay their payments for a predetermined period of time. It is a common feature offered by retailers and other businesses as an incentive for customers to purchase.

With deferred billing, the customer receives the product or service immediately without paying for it at the time of purchase. Instead, the company will send them an invoice after the deferment period has expired. The customer then has the option to pay in full or take advantage of various payment plans offered by the company. Most deferred billing plans involve paying a certain monthly amount over a designated period until the balance is paid in full.

Deferred billing is often associated with financing and loan arrangements, particularly when purchasing large items like cars or a high volume of goods or materials. However, it can also be applied to smaller purchases, such as insurance premiums or subscription services. In these cases, deferred billing allows the customer additional time and flexibility in managing their budget while still allowing the business to collect what they are owed.


  • Credit sales
  • Installment billing
  • “Buy now pay later” billing

Types of Deferred Billing

There are various types of deferred billing plans, including fixed-payment plans, percentage-based plans, and tiered-payment plans.

  • Fixed-Payment Deferred Billing: The customer agrees to pay what is owed on a regular basis over the course of the arranged term. The amount due each month will remain the same until all payments have been made in full. Some companies may also offer a deferred billing option with no interest charges applied; however, these arrangements are usually reserved for customers with excellent credit histories.
  • Percentage-Based Deferred Billing: The customer provides a percentage of the purchase price upfront and then pays the remaining balance in installments over an agreed-upon period of time. Not paying the full price upfront makes it easier for customers to budget for purchases and reduces the impact on cash flow. Some vendors may offer discounts for using this type of payment plan.
  • Tiered-Payment Deferred Billing: With this type of billing, the merchant sets up different tiers of payments, which can be spread out over several months or years. Each installment is based on tiers or levels, representing what the customer will have to pay for each installment. The fees can increase or decrease with each tier/level, ultimately affecting what portion of the total balance will still be due after each paid installment.

The Benefits of Deferred Billing

Goods with a hefty price tag, used over an extended period, often use deferred billing as a payment option. Deferred billing has become increasingly common in the B2B E-commerce and software as a service (SaaS) sectors. Customers can get the necessary supplies, materials, equipment, or services to operate their business while delaying payment. For cash-strapped startups, deferred payments are essential to develop products and launch their businesses.

Grow Revenue

Deferred billing allows vendors to grow revenue while offering customers more flexibility in how they pay for goods and services. It’s an attractive option for those who don’t have the funds available upfront to purchase costly items such as furniture, large appliances, software, and manufacturing materials. As such, it reduces friction in the sales process by removing a barrier to purchasing high-ticket items or placing high-volume orders.

Predictable Cash Flow

Another benefit of deferred billing is that it enables businesses to spread revenue over time, meaning cash flow isn’t as heavily impacted when large orders come in. This makes budgeting and forecasting much simpler, as you know exactly how much income you’ll receive each month rather than fluctuating wildly depending on when sales are made.

Customer Loyalty

Deferred billing also helps improve customer relationships since it offers more flexibility in terms of payment. Installment payment plans can increase customer loyalty by making it easier for customers to stick with a particular provider rather than switching due to financial constraints.

Deferred Billing Arrangements

Companies that offer this type of payment plan usually have detailed terms and conditions on when payments must be made and what happens if payments are late or missed altogether. Both parties must understand what’s expected from each other before entering into any agreement involving deferred payments.

When customers agree to deferred billing terms, they typically pay nothing for a specific period before regular payments begin or payment is due in full. Interest may be charged on the outstanding balance as part of this arrangement, but this will depend on the specific agreement between the customer and the business. Some deferred billing plans may also include fees for late payments or penalties for non-payment, depending on what was agreed upon in the billing terms and conditions.

Billing Software for Deferred Payments

Billing software enables companies to manage invoicing and payment processing when customers delay payments for a period of time after purchase. This process differs from traditional payment processes, where customers usually pay for goods or services immediately or soon after purchase.

Deferred payments are often used when selling bigger ticket items such as cars and furniture or in long-term contracts such as SaaS subscription services after a free trial period. The billing software helps businesses keep track of billing cycles, what customers owe, what has been paid, and what is still outstanding. It also helps them send out invoices on time and maintain accurate records for accounting purposes.

In addition to providing accurate financial reporting, billing software allows businesses to analyze data quickly and efficiently to identify trends in customer behavior and forecast revenue.

Other features may include credit card processing tools, which allow businesses to accept credit card payments from their customers directly through the system. 

This enables them to process transactions quickly and securely, improving customer experience and providing a more convenient way to pay once the deferment period ends. 

Additionally, billing software packages often have integrations with other applications, such as customer relationship management (CRM) and configure-price-quote (CPQ) systems, which allow businesses to manage their entire customer lifecycle from one platform.

A reliable billing system with features built explicitly for managing deferred payments provides companies with peace of mind knowing that their cash flow is better managed with fewer risks of late or missed payments from customers. With this billing solution, companies can focus more on expanding their business instead of worrying about collecting what is owed.

People Also Ask

What is an example of deferred billing?

An example of deferred billing would be when a customer purchases an item on credit without paying the full price upfront. Instead, they agree to pay the balance over time in installments. This gives them access to the item immediately while also having more flexibility with their budget. 

The merchant may also offer discounts or deferred interest payments if the customer pays off the balance within a specific time. Another example is if someone purchases a large ticket item such as a car or furniture set on credit and makes scheduled payments over several months or years until it is paid in full.

What does deferred billing mean?

The definition of deferred billing is a payment plan in which customers receive goods or services and are allowed to pay for them later, often with no interest charges.