Last editedOct 20212 min read
Does your business serve the same clients at regular intervals? If so, you might benefit from using a recurring invoice system. What is a recurring invoice, and is this type of billing system right for you? We’ll explore these questions in this guide.
What is a recurring invoice?
A recurring invoice is an invoice submitted to the same customer at regular intervals. It will include the same invoice details each time to reflect the regular service provided. In most cases, recurring invoices are sent monthly to reflect a subscription service or payment plan.
Automated invoicing software offers a simple way to issue recurring invoices at the same time, with the benefit that both customer and business know exactly what to expect. There’s no need to schedule reminders or copy and paste invoices. To get started, the customer must first agree to this monthly charge. The recurring invoice process then stops at the conclusion of the service, or whenever the customer withdraws permission.
Recurring invoice examples
There are certain types of businesses that are more likely to use this billing system. Recurring invoice examples are seen in business models like the following:
Subscription services, including web design, magazines, and monthly product deliveries
Rental companies, including property, vehicles, and equipment
Media and utility companies, including cable and software as well as mobile phones
Landscape and cleaning companies that provide services on a regular basis
Recurring invoices work for most service-based businesses that bill by the month, whether it’s providing blog content or online maintenance. Websites that use a membership model might also use this type of invoice, giving members continued access to their resources with monthly billing.
Benefits of recurring invoices
The primary benefit of recurring invoices is convenience. Suppliers don’t need to wait for a customer to pay each month, nor does a customer need to go to the hassle of sending manual payments that differ with each invoice. Everything is smooth and automated. Here are a few additional benefits to consider:
Improved cash flow: Businesses gain a steady stream of income which improves cash flow each month. You can create a more realistic budget based on realistic cash flow projections.
Faster payments: It’s also easier for customers to budget when they know what to expect with their monthly bills. This encourages them to set up automated payments, which are paid on time.
Streamlined payment process: Using online software like Xero, you can easily create recurring invoices with a template and link your customer’s card information. After it’s set up once, the payments run like clockwork.
Saves time: In addition to saving money, using a recurring invoice system saves time. While creating a fresh invoice only takes a few minutes each time, if you add all of these minutes together it suddenly becomes a major source of unnecessary admin.
Disadvantages of recurring invoices
On the other hand, recurring invoices don’t make sense for every type of business. If you don’t sell products or services at regular intervals, this will not be the best option. Additional disadvantages include:
Possibility of errors: When invoices are sent automatically, you won’t have the chance to spot an error before the client receives it.
Lengthy correction time: When errors are spotted, it will usually be after the customer has already paid the bill. This means going back to fix the issue after the fact, which is a more time-consuming process.
Fortunately, automatic invoicing software is designed to spot and correct errors to eliminate this problem.
How to create recurring invoices
Now that you understand the recurring invoice meaning and benefits, are you ready to get started? It’s easiest when you use invoicing software like Xero or FreshBooks. You can then go into the invoice creation section. Choose a template and fill in the following details:
Customer contact information
Product or services you’re selling
Quantity and price of products
Starting date and number of occurrences
You’ll then be able to finish the set-up process by approving the invoice. It will be sent automatically according to your specifications. If you need to make changes down the line, you’ll be able to go back into the system to edit, pause, or cancel your recurring invoice.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.