How Do Billing Systems Work?

by Gail Cohen; Updated September 26, 2017
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Your billing system can be as rudimentary as a pen and ledger or as sophisticated as a computer and software program designed to manage everything from calculating charges to sending out statements. Sophistication aside, basic billing concepts haven’t changed since biblical times. There’s still a service provider, a service user and the fee that binds the relationship.

Billing Starts With People

Your staff builds a profile of every customer as the first step in designing a billing system individual to your enterprise. Data staff collects names, billing addresses and terms under which your fees are collected. If a third party such as an insurance company is involved, that information is secured as well. Customers may ask you to bill them directly or place charges on a credit card.

Data Input and Verification

Information given by customers is input into a software program or recorded manually in a ledger. Verification of credit scores and insurance company coverage may be accomplished by phone or website access. Your staff may have to access sensitive information like credit scores to build a complete profile for your billing system as some customers may wish to pay off their debt in installments.

Coding Accounts

Whether your business bills one service (a consultation) or a myriad of services (consultation, lab fees, materials and the like), setting up a coding system to categorize every service and product is essential for tracking money. For example, a dental patient may be billed for a cleaning, but the fee charged if the dentist does the procedure instead of the hygienist isn't the same, so two codes are used for billing purposes. One code may signify a gold crown while another represents the less expensive porcelain cap. Codes do double duty, allowing you to track costs and categories so you always know how time and resources are spent.

Bills Are Issued

You have a couple of ways to set up your billing system dating. Some business owners bill every customer on the same day each month. If you don’t use a computer to handle this job, following suit makes sense. Alternately, your electronic billing system may allow you to sort customers by “service date.” A July 10 service, for example, will automatically generate a statement on Aug. 10 using standard, 30-day billing cycles. Your cash flow may be better served by sending out statements within days of a service that's performed. You can use both snail mail and electronic billing to invoice customers.

Invoices Are Tracked

Flagging accounts once due dates have come and gone is an important part of every company’s billing system. Payment reminders coordinated with the attachment of “past-due” fees are another benefit to maintaining a computer-based billing system. Alternately, members of your accounting staff may use a “hot file” system featuring a rolling list of due dates that prompt phone calls reminding customers to pay invoices once a due date has passed.

Collection Services, Audits and Middlemen

You may prefer to handle your own collection services rather than use an outside agency to oversee nonpayment issues. Periodic, self-auditing practices catch many types of billing system irregularities. You can also affiliate with a clearinghouse set up to take care of every aspect of your billing system, from customer credit checks to issuing bills. These services aren't cheap, but if you prefer to farm out billing, the trade-off may be worth the expense.

About the Author

Based in Chicago, Gail Cohen has been a professional writer for more than 30 years. She has authored and co-authored 14 books and penned hundreds of articles in consumer and trade publications, including the Illinois-based "Daily Herald" newspaper. Her newest book, "The Christmas Quilt," was published in December 2011.

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