Cycle Billing: Prorated Rental Rates

In This Article

• Introduction
• About Cycle Billing
  • Rental Rates
  • How Weekly and Monthly Rates Are Charged
  • Which Rate Applies?
  • 28-Day Billing vs. Monthly Billing
  • Proration vs. No Proration
• How Prorated Rates Are Calculated
  • Notes
• Frequently-Asked Questions
  • Why is Invoice #1 so high?
  • Why is Invoice #2 so low?

Introduction

Rental Management (Classic)’s Cycle Billing feature allows equipment companies to bill customers for rental Contracts on a repeating basis. This powerful tool automates the rental fee calculation process, ensuring that customers are always charged the correct amount regardless of which equipment they’re renting and how long the rental period lasts.

Depending on your organization’s approach to billing, some rental invoices may be prorated. The amount charged on prorated invoices can be a source of confusion for customers and equipment companies who are not familiar with the way these invoices are calculated. 

The following article will explain these calculations in detail so that your staff and customers can share an equal understanding of how proration works.

About Cycle Billing

Cycle Billing refers to automatically billing an ongoing rental Contract on a regular basis. Financials (Classic) can be configured to handle cycle billing in a number of different ways to suit your organization’s practices. 

The following sections will provide more context on how cycle billing works and the impact each option has on proration.

Rental Rates

Before performing Cycle Billing for your assets, you will need to establish rental rates for them. These rates are normally established at the Group level, but can also be set for each individual Product. Most rental companies use the following 3-rate structure:

1. Daily: The rate charged for rentals lasting under 1 week (5 business days).
2. Weekly: The rate charged for rentals lasting between 1 week and 1 month (20 business days).
3. Monthly: The rate charged for rentals lasting over 1 month (20 business days).

In order to incentivize longer rental periods, these rates are generally descending in price: the weekly rate is less than the daily rate, and the monthly rate is less than the weekly rate.

How Weekly and Monthly Rates Are Charged

It is important to note that while weekly and monthly rates are expressed as a total cost per 5 days or 20 days respectively, they are charged on a daily basis. 

For example, the monthly rate for a skid steer might be $3,800 per 20 business days. This is equivalent to a daily rate of $190. If this skid steer is rented out for a period of 34 days, the total cost will be $190 * 34 = $6,460.

Which Rate Applies?

Only one rental rate ever applies to a single Contract. This rate is determined by the length of the rental period at the time of invoicing.

For example, if a Contract were invoiced after 15 days of rental, the weekly rate would apply. If that same Contract were invoiced again the following month – after 36 days of rental – the monthly rate would now apply to all 36 days of rental. 

This effectively means that a retroactive discount is applied to all Contracts once their rental period extends past 5 days and they become eligible for the weekly rate, and again once their rental period extends past 20 days and they become eligible for the monthly rate. 

28-Day Billing vs. Monthly Billing

Cycle billing can follow one of two structures: monthly billing (based on calendar months) or 28-day billing (every 4 weeks). Both methods charge customers for ongoing rentals at consistent intervals, but they differ in how invoice dates repeat and how many invoices are issued each year:

• Monthly billing aligns with the calendar: customers receive 12 invoices per year, each covering one full calendar month from the contract’s billing date.
• 28-day billing follows a strict 4-week cycle: customers receive 13 invoices per year (28 days per cycle * 13 cycles = 364 days). This method creates predictable, uniform billing periods that never shift with long or short months.

The below table summarizes the differences between these two methods:

Feature	Monthly Billing	28-Day Billing
Number of invoices per year	12	13
Length of billing period	Calendar month (variable)	Always 28 days
Billing date pattern	Same day each month	Day of the month shifts over time
Days of the month counted	The 29th, 30th, and 31st days of the month are not counted. Note: this only applies to Contracts over a month long. These days are still counted when billing daily or weekly!	All days of the month are counted.
Effect on revenue	Standard	Slightly higher annual revenue due to extra cycle
Customer experience	Matches familiar monthly billing	Faster, more predictable billing periods
Business benefits	Simple and familiar; aligns with accounting months	Faster cash flow, aligns with industry standard “4-week” rate cards

See “Proration vs. No Proration” for a comparison of how billing dates shift from period to period using these two methods.

Proration vs. No Proration

For rental companies that use proration, all Contracts are invoiced on the same day each month – for example, the last day of the month. For companies that do not use proration, each Contract is billed on a different day of the month, relative to its start date and whether monthly or 28-day billing is used.

The table below illustrates this difference, using a fictional rental Contract that started on Monday, July 14th, 2025:

	End-Of-Month Billing With Proration	Monthly Billing, No Proration	28-Day Billing
Initial Rental	Monday, July 14th, 2025	Monday, July 14th, 2025	Monday, July 14th, 2025
Invoice #1	Thursday, July 31st, 2025	Thursday, August 14th, 2025	Monday, August 11th, 2025
Invoice #2	Sunday, August 31st, 2025	Sunday, Sept 14th, 2025	Monday, Sept 8th, 2025
Invoice #3	Tuesday, Sept 30th, 2025	Tuesday, October 14th, 2025	Monday, December 6th, 2025
Summary	The first invoice will be for a period less than one month. After that, the exact monthly rate will always be charged. The invoice date is always the last day of each month.	The exact monthly rate will always be charged. The invoice date is always the same day of the month.	The exact 28-day rate will always be charged. The invoice date is always the same day of the week.

How Prorated Rates Are Calculated

Now that basic understanding of Cycle Billing has been established, it is time to look at prorated rental rates in more detail. 

The following scenario illustrates how rental rates will be calculated for a fictional machine rented on Monday, July 14th, 2025. This scenario uses a monthly billing structure.

In the table below, the “Amount” column indicates the daily, weekly, and monthly rates for this fictional piece of equipment. The “Daily Equivalent” and “Weekly Equivalent” columns show the amount that will be charged for each day or week of rental once the weekly or monthly rates apply.

Rate	Amount	Daily Equivalent	Weekly Equivalent
Daily Rate	$500
Weekly Rate (5 days)	$2,000	$400 ($2,000 / 5)
Monthly Rate (20 days)	$6,000	$300 ($6,000 / 20)	$1,500 ($6,000 / 4)

The next table below illustrates how rental rates will be calculated for this machine across four separate Cycle Billing periods:

Date	Total Contract Amount	Amount Invoiced
Monday, July 14th, 2025 Initial Rental	n/a	n/a
Thursday, July 31st, 2025 Invoice #1 Time on rent: 2 weeks, 3 days	= (weekly rate * 2) + (weekly rate daily equivalent * 3) = ($2,000 * 2) + ($400 * 3) = $4,000 + $1,200 = $5,200	= (Total Contract Amount) - (Amount Paid)  = $5,200 - $0 = $5,200
Sunday, August 31st, 2025 Invoice #2 Time on rent: 1 month, 2 weeks, 3 days	= (monthly rate * 1) + (monthly rate weekly equivalent * 2) + (monthly rate daily equivalent * 3) = ($6,000 * 1) + ($1,500 * 2) + ($300 * 3) = $6,000 + $3,000 + $900  = $9,900	= (Total Contract Amount) - (Amount Paid)  = $9,900 - $5,200 = $4,700
Tuesday, Sept 30th, 2025 Invoice #3 Time on rent: 2 months, 2 weeks, 3 days	= (monthly rate * 2) + (monthly rate weekly equivalent * 2) + (monthly rate daily equivalent * 3) = ($6,000 * 2) + ($1,500 * 2) + ($300 * 3) = $12,000 + $3,000 + $900 = $15,900	= (Total Contract Amount) - (Amount Paid)  = $15,900 - $5,200 - $4,700 = $6,000
Friday, October 31st, 2025 Invoice #4 Time on rent: 3 months, 2 weeks, 3 days	= (monthly rate * 3) + (monthly rate weekly equivalent * 2) + (monthly rate daily equivalent * 3) = ($6,000 * 3) + ($1,500 * 2) + ($300 * 3) = $18,000 + $3,000 + $900 = $21,900	= (Total Contract Amount) - (Amount Paid)  = $21,900 - $5,200 - $4,700 - $6,000 = $6,000

Notes

• Invoice #1 (Thursday, July 31st, 2025)

• • The first invoice is prorated, representing only the period from the initial rental date to the end of the month.

• • Because the total rental period is still under 20 days, the weekly rate applies, and the 29th, 30th, and 31st days of the month are counted. 

• • If the rental period continues into the next billing cycle, the higher cost of this invoice will be offset by the next invoice.

• Invoice #2 (Sunday, August 31st, 2025)
  • With this invoice, the rental period is now over 20 days. The monthly rate now applies.

• • Important: This rate is retroactive for the entire rental period.
  • Because the customer paid the weekly rate for Invoice #1, Invoice #2 ends up being less than what 20 days billed at the regular monthly rate would be.

• Invoice #3 (Tuesday, Sept 30th, 2025)

• • Now that the rental period has extended into multiple months, the invoiced amount has stabilized to match the standard monthly rate. 
  • All subsequent invoices will now be for this same amount.

• Invoice #4 (Friday, October 31st, 2025)

• • Like Invoice #3, Invoice #4 (and all following invoices) will be for standard monthly rate.

Frequently-Asked Questions

When it comes to prorated Cycle Billing invoices, rental companies and their customers each tend to have one primary concern:

Why is Invoice #1 so high?

Upon receiving Invoice #1, rental customers tend to ask: “Why is this invoice so high?”

This is because the total rental period is under one month, so you are being charged either the higher daily rate or weekly rate – depending on when in the month the rental began. 

Even for multi-month rental contracts, the system will always charge the rental rate corresponding to the current length of the rental period. This is to prevent after-the-fact price adjustments in cases where a Contract needs to be terminated prematurely. 

This higher charge is not permanent. Provided the Contract extends into the next billing period, the difference between the higher daily/weekly rate and the lower monthly rate will be captured as a discount on the next invoice.

Why is Invoice #2 so low?

Upon sending Invoice #2, rental companies tend to ask: “Why is this invoice so low?” 

This is because the customer is being compensated for the higher rates they paid in the initial prorated invoice. 

Because the first invoice was sent while the rental period was still under 1 month, the customer paid the higher daily or weekly rate for it. Now that the rental period is greater than 1 month, the lower monthly rate retroactively applies for the entire Contract.

The difference between the higher daily/weekly rate the customer paid on the first invoice and the lower monthly rate they are now paying is represented as a discount on the second invoice. From this point forward, all of the customer’s invoices will be for exactly 1 month of rental at the monthly rate.