As the world is seeing a fast-growing subscription industry, recurring billing has become an important part for online business owners. However, understanding fully what is recurring billing and how it supports your business can be somewhat confusing.
In this article, we will walk you through recurring billing, from the definition and types to how it works and its benefits to online businesses.
What is recurring billing?
Recurring billing (or automated bill pay) is an agreement allowing business owners to automatically charge their customers for goods or services at prearranged intervals (weekly, monthly, annually, or custom intervals). It is related to a subscription system in many aspects, but it’s less about how much is paid and more about how often the customer is billed. Basically, recurring billing enables businesses to receive ongoing payments by only once collecting card information from the customer. The business owners require customers’ payment information and permission before automatically charging, depending on the payment method. Electric bills, phone bills, Internet services, and gym membership fees are examples of recurring billing.
Benefits of recurring billing to online businesses
Recurring billing is a convenient, attractive, and easy way for continuous revenue and better conversion rates by providing your customers with flexible ways to make payments.
- Guarantee a predictable cash flow into the business
Recurring billing provides businesses with a consistent and reliable cash flow. This helps the business owner to predict the revenue that will be generated in a specific period.
- Save time, money, and resources for business owners
In a recurring billing system, the customers are automatically charged in each cycle. This helps businesses reduce the chances of delayed payments, non-payments, which saves time, money, and other human resources to follow up.
- Replace manual intervention with an entirely automated process
The process of repeatedly charging customers is entirely automated, which saves businesses from doing repetitive tasks every billing cycle. Once the invoice is created, the payment cycle is set, and the customer’s payment information is provided, the automated mechanism will bill and charge the customer for the service without manual intervention.
Customers can take advantage of recurring payments through subscription (paying for goods and services on a repeated schedule) and financing (buying now, paying later). Recurring payments can save their time, too: they only need to sign up and provide their payment information one time.
However, alongside the advantages, recurring billing also has some drawbacks. The most common challenges are payment failure, payment security issues, and fraudulent payments. Business owners can implement a recurring billing system with the right subscription management tools to tackle these challenges.
Types of recurring billing
- Fixed recurring billing
In fixed recurring billing, the business owner will collect the same amount from the customer every payment cycle. This type of billing is most suitable for businesses that provide goods or services at a certain price (i.e. Newspaper subscriptions and gym memberships). This type of billing guarantees stable and continuous revenue for the business and provides good prospects for upselling.
- Variable recurring billing
In the variable recurring billing, the amount collected from the customer might change in every payment cycle. Business owners need to track the customer’s product usage to create a new and accurate bill for each cycle.
We can divide variable recurring billing into further categories:
- Metered billing (also known as usage-based billing): This is the system of charging customers based on their service usage. Typically, a subscription using metered billing has a base plan, and it will charge customers additionally for any use beyond the base plan. Internet services and utility bills are typical examples of metered billing.
- Quantity-based billing: The customer will be charged based on a quantity that was agreed upon their purchase. The volume-based cloud storage service is a popular example of quantity-based billing.
How recurring billing works
Recurring billing can streamline the payment process for both business and customers, allowing customers to automatically pay for goods and services on an agreed schedule such as yearly, monthly, weekly, or even daily schedule. Businesses and customers can set up a recurring billing agreement directly over the phone or in-person with a payment form.
To set up this agreement, first, the customer chooses the payment options when they purchase on your website or store. After accepting the terms and conditions and receiving authorization, the customer agrees to the amount they will pay and provides their payment information. When the agreement is in place, the business can process the payment as agreed without additional information from the customer.
Recurring payment schedules may have expiration dates, or they can continue indefinitely until the customer makes a change. Each time the business processes a customer’s recurring payment, they will usually notify the buyer via email or text.
A gym membership is a typical example of how recurring billing works. Customers need to provide their bank details to cover the regular monthly subscription payment until the contract ends or until they cancel their membership.
What type of business is best suited for recurring billing?
Recurring billing is most popular in subscription businesses. When customers subscribe to a product or service, they are will also provide their payment information and agree to permit the business owners to deduct a proper amount from their account periodically automatically. Here is the list of businesses that are most suitable for recurring billing:
- Newspaper and magazine subscriptions: The New York Times, The Economist;
- Health and fitness: Gym memberships, 24-Hour Fitness;
- Education and E-learning: Duolingo Plus, Pandanese;
- Entertainment: Netflix, Amazon Prime Video, HBO Max;
- SaaS applications: Google Apps, Slack, or Dropbox;
Basically, any business that offers its services on a continual basis can implement recurring billing. Even small online businesses can use recurring billing to achieve customer satisfaction. For example, if you own an online pet shop, you may have some loyal customers that will buy pet food weekly or monthly. In this case, you can offer them a small monthly discount to customers to sign up for recurring payments. Many large companies also use this tip as it helps to lower the risks of any missed payments.
Recurring billing offers the benefits of time-saving, convenience and is especially helpful for businesses that sell subscriptions or businesses with high-value products. Customers who may not feel comfortable spending a large amount of money at a time often find these purchases more accessible as it allows them to divide the total bill into smaller payments over time.
Now you know what is recurring billing and how your business can benefit from it. If you have ever considered implementing this potential system into your business, you may want to take it to a higher level of achieving customer success with AccountDock! AccountDock is a leading software in providing billing history to customers. We support Stripe-powered businesses to provide their customers with beautiful-designed and responsive receipts in emails and PDFs. From there, customers can review their invoices anytime, or send an email directly from the website, and manage their invoices within a few clicks. A little effort brings huge customer satisfaction! Get your 14-day trial now with AccountDock!