From monthly to annual invoicing: Improved liquidity and cash flow

Are you operating with a monthly or annual invoicing? One of the most common challenges we see among our new investments is that a large share of their annual recurring revenues (ARR) still operates on a monthly invoicing cycle. Our recommendation is to shift customers to upfront annual invoicing as soon as possible because of clear advantages. Here’s why and how shifting your payment model from monthly to annual can improve liquidity and enhance cash flow.

The pros and cons of monthly invoicing

When choosing a payment model in the early stages of growing your company, you often start with the question: How do we sign more customers faster? Monthly invoicing lowers the barrier to entry. Customers commit to a smaller up-front payment, making it easier to say yes. It also offers flexibility, attracting those who want to test the product before committing to the long-term.

However, the downsides can add up quickly. Downsides such as weaker cash flow and increased administrative overhead. With monthly invoicing you receive smaller payments on a rolling basis, which can create cash flow constraints and making it harder to fund growth and operations.

While monthly invoicing may accelerate customer acquisition in the short term, the long-term consequences often create bottlenecks to sustainable growth.

How to transition from monthly to annual invoicing

Shifting invoicing models isn’t just a finance decision; it also involves sales, marketing and customer success. When leadership isn’t aligned; the discussion often gets stuck in an endless loop of “will customers push back?”. A clear mandate from the board and CEO can eliminate uncertainty and prevent endless internal debates about whether to make the transition.

Many companies attempt to “soften the blow” by transitioning customers gradually from monthly to quarterly, and eventually to annual invoicing. However, in our experience, churn remains minimal regardless of how quickly you make the shift. This means you can move directly to annual invoicing without significant risk.

As shown in the example below, quarterly billing has only a modest impact on cash flow compared to annual billing. While it provides a slight improvement over monthly invoicing, it doesn’t offer the same level of financial strength or cash buffer. Annual billing, on the other hand, significantly improves liquidity by front-loading cash inflows—making the company far more resilient to fluctuations in sales or unforeseen expenses.

Show the impact of annual invoicing

If the leadership hesitates, hard data is the best way to win buy-in. Visualize how different billing structures (monthly, quarterly, semi-annual, and annual) impact liquidity and cash flow.

One powerful way to visualize this is to show what happens to cash flow without increasing net new customer growth. When you illustrate that maintaining monthly billing could lead to difficult trade-offs, like hiring freezes or cost cuts, it becomes clear why this transition isn’t just about preference but a necessity.

Below you can see an example from one of our portfolio companies. In the illustration on the left, you can see how annual invoicing allows you to build up a cash buffer at the start of each year—giving you greater flexibility to manage expenses throughout the year. On the right, by contrast, there’s no increase in the share of annual invoicing. In this scenario, you’re much more reliant on consistent sales performance to avoid dipping below your minimum cash threshold. As the illustration shows, annual invoicing significantly strengthens your financial resilience compared to monthly billing.

Set clear targets and KPIs

Make annual invoicing a core KPI to ensure focus and execution. Teams prioritize what they get measured on. Review existing contracts and set realistic timelines for transitioning customers, leveraging renewal cycles and a strong communication strategy.

At the same time, ensure that new customers are on annual billing from day one by having only one option or aligning incentives. Tie sales commissions to annual contracts rather than evergreen agreements.

• Define a target ARR percentage on annual contracts – Set aggressive but achievable milestones.
• Review existing contracts – Identify renewal timelines and build a roadmap for transitioning customers.
• Align incentives across teams – Ensure sales comp plans favour annual deals over evergreen monthly contracts.

How to get customers to accept new contracts

If you haven’t adjusted pricing in years, consider introducing the new invoicing model alongside a price update. With this strategy, you avoid negotiating two separate changes at different times.

• Keep the messaging simple – Customers should understand why this change is happening in a way that aligns with their interests and market standards.
• Frame it as an upgrade – Focus on product improvements, reduced admin burden, and the fact that annual billing aligns with industry best practices.

Different approaches for SMBs vs. enterprise customers

Tailor your messaging and strategy based on customer size. Here’s how to segment the messaging and execution for different types of accounts:

For SMBs: Highlight cost savings and reduced administrative overhead. Digital communication works well. Explain the change clearly and why it benefits them.

For enterprise customers: Handle negotiations personally. Emphasize predictability, budget control, and procurement efficiency. Make it clear that annual invoicing is the industry standard. Expect internal pushback and prepare strong counterarguments. Set expectations early and offer incentives for loyal customers.

From 0% to 61% ARR on annual billing in 13 months

One of our portfolio companies recently faced this exact challenge. They started with 0% of ARR on annual contracts, and in just over a year, they have shifted 61% of ARR to annual invoicing by following the steps described in this article.

Their biggest challenge was to re-negotiate enterprise deals. The key takeaway for them was to set expectations early. Instead of asking if customers want to switch, position it as a standard change and focus on helping them align internally. A practical tip is to be proactive, stay engaged and offer support. Equip your champions within the customer’s company with data and arguments to sell the transition internally.

In the illustration below, you can see the transition of share of ARR on annual billing during a year.

Final takeaway: Make annual invoicing a “no-brainer”

Moving from monthly to annual invoicing isn’t just about improving cash flow, it’s also a growth enabler. But success requires:

• Executive commitment – This isn’t just a finance initiative; it’s a company-wide strategy.
• Clear communication – Frame the shift in a way that customers see it as a market standard.
• Smart segmentation – Tailor your approach for SMBs vs. Enterprises.

Done right, this shift transforms your business by boosting predictability and strengthening your long-term financial position. The companies that master this transition don’t just see stronger cash flow, they also unlock a foundation for sustainable, scalable growth.

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