What is recurring billing?
Recurring billing is repeated or regular payments carried out within a particular schedule. This payment scenario doesn’t require the direct participation of the payer and re-entering payment data. Being set up once, recurring payments are made automatically, without obligatory confirmation from the payer.
The recurring billing software can be used by any business which offers its services on a recurring basis. Among them are streaming platforms, SaaS applications, utility services, magazine subscriptions, membership services, etc.
Recurring billing vs Subscription billing
Both recurring billing service and subscription billing include auto-charging and storing customers’ payment information. That’s why these two terms are often used interchangeably. However, there’s a slight difference between them.
With recurring billing, customers typically pay for a predefined service that doesn’t involve trial periods or upgrades. This model includes periodic withdrawals from a securely stored payment method, such as a credit card. Recurring billing software is suitable for any type of business, not just subscription businesses.
In the subscription billing model, customers can achieve more flexibility with multiple pricing plans. This model also often includes a trial period and enables customers to upgrade their subscriptions and switch between them. Unlike recurring payments, subscription payments are not necessarily automatic. Businesses can send invoices to customers regularly so they can pay themselves at the beginning of every billing cycle.
How does recurring billing work?
Regardless of which recurring billing platform is used, the model works in much the same way. Let's walk through what setting up recurring billing looks like from a customer's point of view.
- A customer signs up for a service on some site. During the checkout process, they enter debit or credit card details and additional information, such as phone number. At this point, many online services offer to save this data and activate recurring payments.
- If the customer approves auto-charging, the fixed amount will be automatically debited from their card or bank account at intervals specified in the settings. The system will regularly debit funds using previously saved details without the cardholder’s participation.
- Auto-withdrawal continues until the subscription expires. The customer receives a notification upon each charge.
- The customer can disable recurring billing at any time through their personal account or a contact form on the seller's website.
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Recurring billing types
Depending on the specifics and needs of a particular business, recurring billing can be divided into two types: fixed recurring billing and variable recurring billing. What is the difference between them?
The term itself suggests that this model provides for a fixed amount to be debited in each billing cycle. Recurring billing software is a convenient option for businesses with a flat service fee, for example, magazine subscriptions, gym memberships, etc. Thus, fixed recurring billing is about debiting the same amount at the same period of time.
With variable recurring billing, the write-off amount changes each payment cycle based on the customer’s service usage. A popular example of using this model is utility services. Here, the final amount is formed individually for each separate period and service.
Recurring billing benefits
Obviously, recurring billing has plenty of benefits for both customers and businesses. Let's list them.
- Without a doubt, recurring billing solutions on a set schedule save a lot of time. The customer only needs to provide data once for the business to use it for further withdrawals. No manual intervention is required.
- Fully automated periodic charging reduces the chances of delayed payments and non-payments. The customer will not forget to pay for the subscription and won’t be left without the service at the most inopportune moment.
- Recurring billing provides stable and predictable revenue streams for a business. Based on the reports from your payment provider, you will always know the approximate income for a certain period of time.
- Entirely automated recurring billing systems significantly save the physical and material resources spent on serving financial transactions. The company relieves itself of the responsibilities associated with invoicing and payment control, except for resolving atypical problems.
- The recurring billing platform drives customer retention. By agreeing to auto-debit, the customer establishes a long-term relationship with your business. Thus, you can focus on expanding your business offerings already having a loyal audience.
Thus, recurring billing is about simplification, predictability, and savings for business and payment convenience for customers. A recurring billing platform is definitely worth implementing for businesses who sell products or services that people buy regularly.
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