What is True-Up Billing?

True-up billing is the process of reconciling what a customer was billed upfront against their actual usage or entitlements over a set period.

Think of it as a correction step. You estimate usage, bill accordingly, and then “true up” at the end of the cycle to match reality. If the customer used more than planned, you bill the difference. If they used less, you adjust or credit.

By reconciling estimates vs. actuals, true-up billing ensures your revenue reflects real consumption, while also giving customers a fair, transparent bill. It protects your margins and builds trust by aligning charges with actual value delivered.

You see this approach often in subscription models, software licenses, and utility contracts where predicting exact usage in advance is difficult.

Synonyms

Reconciliation billing
Adjustment billing
Billing reconciliation

The True-Up Process in Billing

True-up billing follows a predictable cycle. Here’s how it works in practice:

Set the baseline.

Communicate and improve.

Estimate usage and bill based on initial contracted consumption levels.

Continuously monitor real-time usage across licenses, storage, or seats.

Compare billed estimates with actual usage at scheduled intervals.

Spot overages or underutilization by contrasting expected versus real usage.

Adjust invoice by charging overages or issuing credits as needed.

Send detailed reports showing what changed and why it matters.

Update contract terms using accurate usage data for next period.

Set the baseline

At the beginning of the billing cycle or contract term, you establish a usage estimate. This is the number you’ll initially bill against. For example, a customer might commit to 100 user licenses, 500GB of storage, or 10,000 API calls per month. This estimate becomes your starting point for both invoicing and performance tracking.

Track actual usage

Throughout the contract period, your system should monitor real-world consumption. Tracking might be based on user logins, gigabytes used, call minutes, active licenses, or resource consumption, depending on your business model. Accuracy here is non-negotiable. Bad data leads to bad billing.

Review at the true-up date

True-ups typically happen at fixed intervals; annually for most enterprise SaaS contracts, but sometimes quarterly or semi-annually in high-variance environments like cloud computing, energy use, and telecom. This is your reconciliation checkpoint where you compare actual usage vs. contracted usage.

Identify discrepancies

If actual usage exceeds what was paid for, that’s a billable gap. If they used less, that might trigger a credit or adjustment depending on the contract. The goal is to find any misalignment between estimated and actual consumption before it causes friction.

Reconcile the difference

Once the gap is clear, you bill the customer for any overages—or issue a credit if they overpaid. This is the “true-up” step: the financial adjustment that makes the customer’s payment match their real usage. It’s critical to get this right and document the calculation in your invoice.

Communicate transparently

Surprises create friction. Send a clear report showing the baseline, the actual usage, and the true-up adjustment. Include usage graphs or logs if needed. Transparency prevents disputes and reinforces that you’re charging fairly, not padding the bill.

Reset the baseline

True-up billing isn’t just a correction. You can also use it as a forecasting tool that helps you build smarter contracts over time. So use this data to inform the next billing period. If usage grew significantly, update the customer’s contract or default package.

How to spot discrepancies early

Waiting until the end of the year to identify overages is risky. That’s why smart billing teams:

Monitor usage monthly. Don’t rely on annual reports. Monthly billing reviews help you spot trends in real time.
Set automated alerts. Flag accounts that exceed 80-90% of their allotted usage. This gives you time to intervene.
Compare historical data. Seasonal or growth-based spikes stand out more when you view usage trends across multiple periods.
Sync billing with product analytics. Your billing system should connect directly to your usage tracking tools. Don’t treat them as silos.

Early visibility not only helps you bill accurately but also gives your account managers time to prepare customers for upcoming charges. That alone prevents some churn from happening.

True-Up Adjustments Examples

True-ups, positive and negative, happen all the time in subscription overages, usage-based pricing, and SaaS licensing models. To help you grasp the concept, let’s look at a few real-life scenarios.

Subscription overages (seat-based pricing)

Let’s say your company sells software licenses in packs of 100 seats per year. You bill them on an annual subscription at $12,000/year.

Positive adjustment: A customer starts with 100 seats but grows to 125 during the year. At the true-up, you invoice them for the extra 25 licenses.
Negative adjustment: Customer only ends up using 80 seats due to downsizing. Your contract allows credits for unused seats.

In the first instance, you’d add a $3,000 charge on the true-up bill (the proportional cost of 25 additional seats). In the second, you’d give them $2,400 credit toward renewal.

Usage-based services (e.g., cloud storage, API calls)

Now suppose charge $0.10 per GB of data transfer per month, with an upfront commitment of 10,000 GB.

Positive adjustment: Customer uses 13,000 GB over the billing period. That’s 3,000 GB more than the prepaid amount.
Netagtive adjustment: Customer only uses 7,000 GB. You offer partial refunds on underages at 50% rate.

For the positive adjustment, you’d give them a true-up charge of $300. For the negative one, you’d issue them a credit for $0.05 per unused gigabyte, or $150 total.

SaaS licensing

Your SaaS product charges a base fee of $5,000 for platform access plus per-user charges of $30/user/month.

Positive adjustment: Customer agrees to 50 users but grows to 60. Your contract specifies true-up billing for overages quarterly.
Negative adjustment: Customer offboards 15 users mid-quarter and requests a review. If your agreement supports downward adjustments, you credit accordingly.

For the 10 additional users at $30/user/month for 3 months (quarterly), you’d charge them $900 on the true-up statement. And for the scenario with 15 fewer users over 2 months (adjusted mid-quarter), you’d credit their account $900.

Utility company

Maybe you’re a utility provider charging $0.15/kWh, and you bill customers monthly based on estimated consumption, with a yearly true-up based on actual meter readings.

Positive adjustment: Customer was estimated at 800 kWh/month but actually used 950 kWh/month. Over 12 months, that’s 1,800 kWh more than billed.
Negative adjustment: Customer was billed based on 900 kWh/month but only used 750 kWh/month. That’s 1,800 kWh overbilled during the year.

The true-up charge on the first customer’s electric bill would be $270. The credit to the second one’s account would be the same: $270. In both cases, you’re accounting for the difference between estimated and actual usage.

True-Up vs. Accrual Accounting

At first glance, true-up billing and accrual accounting might seem similar. After all, they do both deal with aligning payments to actual activity. But they serve different purposes and operate on different timelines.

Accruals

Estimate revenue or expenses to match the right period. Accrual accounting gives you financial clarity month to month.

True-ups

Adjust the amount of revenue or expense once the actual data is available. True-up billing ensures long-term accuracy and fairness in customer invoicing.

What is accrual accounting?

Accrual accounting recognizes revenue and expenses when they’re earned or incurred, which isn’t necessarily when cash changes hands. This method gives you a more accurate view of financial performance over time.

For example, if you deliver a service in September but don’t get paid until October, you still record the revenue in September under accrual accounting, because that’s when you’ve fulfilled your obligation to the buyer and are officially owed it.

Where true-up billing fits in

True-up billing complements accrual accounting by adjusting billed revenue or costs to reflect actual usage. It’s a mechanism for reconciling estimates with reality in variable-pricing environments like SaaS, utilities, and cloud services.

So, while accrual accounting handles when revenue recognition happens on financial statements, true-up billing helps ensure how much revenue is recognized is accurate.

Timing differences between accruals and true-ups

Accruals are usually made monthly based on products and services you’ve provided under contract. True-ups happen less frequently (often quarterly or annually), based on actual usage data that wasn’t available earlier.

Let’s say you billed a customer $12,000 upfront for a year’s worth of service based on estimated usage. Under accrual accounting, you’d recognize $1,000 in revenue each month. But if the customer’s usage far exceeds the original estimate, you’ll issue a true-up charge at the end of the year and book the additional revenue then.

True-Up Entries in the General Ledger

True-up adjustments need to hit your accounting system correctly. Whether it’s billing customers for overages, crediting them for underuse, or adjusting vendor-side expenses, your general ledger should reflect the real usage.

As we’ve already shown, true-up adjustments usually fall into two categories:

Revenue adjustments (the customer used more or less than prepaid)
Expense adjustments (you consumed more or fewer vendor resources than expected)

These entries are typically made at the end of a billing period (monthly, quarterly, or annually) depending on your true-up schedule.

Transaction

Journal entry

Customer used 20 more licenses than prepaid

Debit: Accounts Receivable $2,000

Credit: Revenue $2,000

Customer used 10 fewer licenses than prepaid

Debit: Revenue $1,000

Credit: Deferred Revenue or Accounts Payable $1,000

Vendor charged your business for additional usage

Debit: Expense (e.g., cloud services) $500

Credit: Accounts Payable $500

You used fewer vendor resources than expected

Debit: Accounts Payable or Prepaid Expense $400

Credit: Expense (e.g., Hosting Costs) $400

If the adjustment is positive (you’re billing more), the entry increases both revenue and receivables. If it’s negative (customer overpaid), you either reduce revenue or increase a liability (deferred revenue or payable).

For expenses (i.e., the third and fourth examples), true-up entries increase your costs and recognize additional payables.

True-Up in SaaS Billing

In SaaS billing specifically, teams grow, usage fluctuates, and product adoption expands mid-contract. You have to be ready for that.

True-up billing allows you to:

Charge for actual usage without changing the contract every month
Stay flexible without losing control of revenue
Protect against scope creep and silent customer expansion

It gives you billing agility without sacrificing predictability.

How to handle different SaaS billing models

Usage-based pricing

Think per-seat, per-API call, per-gigabyte. Customers commit to a baseline, and you true up based on what they actually consumed. This is the most direct application of true-up billing.

Example: A customer commits to 100,000 API calls/month, but averages 130,000. You bill the overage quarterly at $0.01 per call.

Tiered plans

Customers select plans based on user count, feature sets, or usage bands. If they exceed their tier, you apply true-up charges instead of forcing an upgrade mid-contract.

Example: Customer is on a 50-user plan but adds 20 new hires. You charge for the extra users at the contracted per-user rate, then re-evaluate at renewal.

Enterprise agreements

Enterprise billing generally involves flexible entitlements or pooled licenses. True-ups guarantee your enterprise accounts are held accountable for usage growth while keeping upfront contracts clean.

Example: An enterprise signs a 12-month contract for 1,000 seats. At month 10, they’re using 1,300. You charge a prorated fee for the extra 300 seats, then reset the baseline for next year.

How true-ups affect customer satisfaction and retention

Customers can’t stand surprise bills and shady practices, but they also can’t stand paying for value they never use. True-up billing builds trust by keeping charges aligned with actual usage.

Here’s how it helps you retain more customers:

Fairness: No one overpays or underpays; they pay what they use.
Clarity: Regular reporting shows exactly how usage drives cost.
Flexibility: They can scale without renegotiating every time their team grows.
No bill shock: With alerts and transparency, customers know what’s coming.

True-up billing transforms billing from a source of friction into a tool for growth. You don’t need to upsell aggressively or renegotiate constantly because your billing naturally adjusts as customers succeed.

Impact of True-Up on Revenue Recognition

Under GAAP, ASC 606, and IFRS 15, revenue must be recognized when performance obligations are satisfied, not just when cash is collected. True-up adjustments align your service delivery with the actual revenue earned.

Let’s say you bill $100,000 upfront for a year of services based on estimated usage. Under accrual accounting, you recognize $8,333 per month. But if actual usage at the end of the year shows the customer consumed 20% more than expected, and your contract includes a usage-based component, you recognize additional revenue through a true-up adjustment.

Without that adjustment, you’re underreporting revenue and breaking with the matching principle.

Important considerations for timing and compliance

All that being said, it’s important to remember true-up billing creates a timing gap between when services are delivered and when the actual revenue is recorded.

Here’s how to manage it:

Monthly accruals: If you expect usage to vary, accrue revenue estimates monthly and reconcile later with actuals.
Deferred revenue: If you overbill upfront, true-up adjustments may require deferring part of that revenue until usage catches up.
Contracts must support it: For compliant revenue reporting, your contracts must clearly define how overages are calculated and when they’re billable.

Your accounting system should flag true-up events as distinct revenue events, especially when adjustments hit outside the normal billing cycle.

Why this matters for financial forecasting

True-ups help your finance team:

Understand customer growth and usage trends
Improve MRR and ARR projections
Identify churn risk (e.g., if usage drops below contract levels)
Reconcile budget vs. actual revenue

They also help revenue leaders model how usage-based or consumption-based pricing performs at scale.

Best Practices for True-Up Billing

Since you have to account for revenue this way, there’s no way around it. You also need to have a process for true-up adjustments if you have any sort of usage-based component to your pricing model.

To get it right, successful DealHub Billing users do the following:

Define clear contract terms.

Spell out how overages are calculated, when true-ups happen, and how adjustments are billed. Remove ambiguity; your contract should specify unit pricing, thresholds, and whether underusage results in a credit. If it’s not in writing, it’s a future dispute.

Pro tip: DealHub CLM and billing integrate natively, so your billing system automatically applies contractual terms to that client or customer’s corresponding invoice.

Automate usage tracking.

Don’t wait until year-end to pull usage reports manually. Connect your product, CRM, and billing platforms to track usage in real time. With an AI-powered billing platform like DealHub, you can track usage within your product or service automatically.

Set alerts for nearing thresholds.

Trigger internal and customer-facing alerts when a client approaches 80–90% of their usage limit. This creates an opportunity to communicate early, offer upsell options, or adjust forecasts before billing becomes a point of friction.

Align billing and RevOps.

Finance, sales, and customer success need to be in sync. A customer success manager should never be surprised by a $12,000 true-up charge their client didn’t expect. Build a feedback loop between your usage data and client-facing teams.

Offer visibility to customers.

Give customers an online or in-app dashboard, and monthly reports sent to their email. That way, they can monitor their usage and know what to expect. You can connect your software to these reporting tools, then create an automation that does this on autopilot.

Document every adjustment.

Always show how the true-up was calculated. Include usage logs, timelines, and rate tables in your invoice or follow-up email. This is something that should happen automatically within your billing and accounting software, but it’s something you need to set up and reconcile periodically.

Don’t delay the adjustment.

Waiting until the next billing cycle to apply a true-up breaks revenue recognition rules and damages cash flow. Apply adjustments promptly at the end of each true-up period.

Use flexible billing software.

We can’t stress this enough. Manual true-up workflows don’t scale. When evaluating billing software, look for essential features like mid-cycle adjustments, automated usage metering, and integration with your financial systems. Without it, you’re flying blind.

Use historical data to refine baselines.

True-up data isn’t just corrective, it’s also predictive. After each true-up, review the original estimate vs. actual usage. Use that data to improve your pricing, packaging, and contract terms for future renewals.