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# Billing in arrears: how Fincome recognises your MRR

# Billing in arrears: what are we talking about?

The difference between the two billing modes comes down to **one thing: when the invoice is issued relative to the service period it covers.** Fincome supports both.

* **In advance** — the invoice is issued at the **start** of the period. The customer pays upfront.
*A monthly subscription at €300: the invoice dated 01/03 covers 01/03 → 01/04. Fincome always has an invoice covering the current period, so MRR is recognised directly, with no specific setup.*

* **In arrears** — the invoice is issued at the **end** of the period. The customer pays after consuming the service.
*The same €300 subscription: the invoice issued on 01/04 covers the elapsed period from 01/03 to 01/04. The current period (01/04 → 01/05) will only be invoiced on 01/05.*

That gap is what requires configuration: without it, Fincome would see the last invoice stop on 01/04 and drop MRR to zero — even though the subscription is active and the next invoice simply hasn't been issued yet. This is what we call **artificial churn**.

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# Enabling arrears recognition

Go to **Settings > Calculation options**, section *MRR recognition over time*.

### 1. The "Billing in arrears" option

This tells Fincome under which condition an invoice should be considered as issued in arrears. Two modes are available, from the most flexible to the strictest:
* **The invoice date is closer to the end of the line's period than to its start**: simulation kicks in as soon as the invoice falls in the second half of the covered period. This is the recommended setting if your arrears billing isn't perfectly aligned with the last day of the period.
* **The invoice date is at most 5 days before the end of the line's period**: a stricter condition — simulation only kicks in if the invoice is issued within the last 5 days of the period. Preferable if you have a mix of advance and arrears invoices and want to avoid false positives.

You can also leave the option **disabled**: no simulation is applied and MRR stops at the end of the last invoiced period.

### 2. The tolerance delay

**"Arrears billing tolerance period (in days)"** — default value: **3 days**.

This is the time Fincome allows your billing tool to issue the next invoice. Once the simulated period ends, Fincome waits this number of days before concluding that churn occurred. Increase it if your invoices can be issued late (manual approval, accounting close, D+5 billing, etc.).

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# How MRR is recognised between two invoices

The principle is simple: **Fincome carries the amount of the last invoiced period over to the next period, for as long as today's date falls inside that simulated period.**

Take a quarterly subscription billed in arrears:
* The last invoice covers the period from **01/02 to 01/05**.
* Fincome infers the next period: **01/05 to 01/08**, at the same amount.
* As long as today's date falls within that period — up to **01/08, plus the tolerance delay** — MRR keeps being recognised as normal.

In the future MRR projection, this carry-over reads in two stages:
* **up to 01/08 + tolerance delay**: MRR is classified as **secured**, since it corresponds to a service period that is due to be invoiced;
* **beyond that**: the projection switches to **unsecured MRR**, as no period is covered by an invoice or a carry-over any more.

### What if no invoice arrives?

If today's date goes past **01/08 + the tolerance delay** without a new invoice being issued, Fincome considers the subscription to have genuinely ended, and churn is recognised.

||| Important: this churn is applied **retroactively**, on the date determined by your *Churn recognition* option (at the cancellation request date, at the effective cancellation date, or at the end of the last invoiced service period). Your charts are therefore corrected in the past, not on the date Fincome noticed the missing invoice.

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# Common issues

**An active customer shows an ARR drop right after their last invoice.**
This is the classic symptom of unconfigured arrears billing. Enable the *Billing in arrears* option.

**Churn appears, then disappears a few days later.**
The next invoice arrived after the tolerance delay. Increase the *Arrears billing tolerance period*.

**I enabled the option but nothing changed.**
Check the selected mode: if your invoices are issued a few days after the end of the period, the "at most 5 days before the end" condition may never be met. Switch to the more flexible condition.

**My periods end on 31/01 and I get churn at the end of January.**
This isn't related to arrears billing: the period end date is exclusive in Fincome. See the *Adjust the end date of invoice line periods* option.

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# Learn more

* [Manage calculation options](https://help.fincome.co/en/article/manage-calculation-options-1ffoqbf/)
* [Churn recognition](https://help.fincome.co/en/article/churn-recognition-1tazl6m/)
* [Calculation of future MRR and future movements](https://help.fincome.co/en/article/calculation-of-future-mrr-and-future-movements-vjteps/)
* [Invoice gaps / overlaps](https://help.fincome.co/en/article/invoice-gaps-overlaps-1lkw2yf/)