Last editedMar 20232 min read
Traditionally, most business transactions were one-off events that involved exchanging payment for goods or services. However, more and more businesses are adopting subscription models, with everything from streaming platforms like Netflix and Spotify to regular grocery deliveries. In particular, this business model is well suited to products or services that customers regularly use and therefore run out of, or online platforms that are regularly accessed.
The model is a great way to generate a stable source of recurring revenue. In these situations, recurring billing is necessary to collect regular payments from customers. But what is recurring billing, exactly? Read on to find out more about this payment model and how it could benefit your business.
What is recurring billing?
Put simply, recurring billing is a payment model that allows you to collect regular payments from your customers at predefined intervals. This is most typically done in monthly intervals, although it is also possible to set weekly, annual or custom intervals such as quarterly ones. In addition, you can create an incentive for customers by offering them a discounted price in exchange for committing to a longer subscription term, such as a year.
In order to carry this out, the merchant requires the customer’s payment details and explicit permission. Once the agreement has been reached, the vendor is able to make repeat charges to the customer’s account with no additional permissions required. Recurring subscription billing software can automate this process, saving you time and energy.
Recurring credit card billing works well for subscription services such as membership fees, as well as for bills.
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Types of recurring billing
There are two main types of recurring billing that you can implement. The first and most common type is fixed billing, which means that the same amount is collected from the customer each interval. For example, this might be used for a magazine subscription or a gym membership. The advantage of this model is that it provides you with a stable and predictable revenue.
The other type is variable recurring billing, sometimes known as irregular billing. In this case, the amount paid for each interval changes according to the customer’s usage. Utility bills are a good example of this – the customer pays according to how much energy or water they used over a month.
Advantages and disadvantages of recurring billing
Recurring billing seems like a great way to ensure a steady revenue for your business. But you should consider the advantages and disadvantages carefully before you introduce this payment model in your business.
The main advantage of recurring billing is that it offers you predictable revenue. This helps you to get a better idea of your cash flow, protect you from any unpredictable fluctuations in the market, and create predictions for your future growth. In addition, you can use recurring billing to upsell to your customers, offering them add-ons or discounted prices for a longer subscription term. Finally, recurring billing makes life easier for you and the customer – transactions are carried out without anyone having to lift a finger.
On the other hand, recurring billing has several disadvantages. Firstly, the process is much more complicated than one-off payments, and requires additional software and planning to implement. In addition, there is the possibility that you could lose customers at each renewal cycle. While a one-time sale requires you to convince the customers of your product’s value just one time, subscription services require you to do this on a regular basis.
Recurring billing software
Using a form of recurring subscription billing software can make life much easier for you. When choosing the right recurring billing software, make sure to consider the needs of your business. For example, you should think about whether you need to process international payments, the number of transactions that you will process each month, and the different payment methods that your customers use. In addition, you should consider ease of use and the possibility for customization and expansion.
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.