What is recurring billing and how does it work?

One-off payments are an important part of business growth but when it comes to true scaling potential, it’s the recurring revenue that makes the difference. Recurring billing streamlines operations by cutting down on customer acquisition costs and improvising regular cash flow. It’s your safety net and your lifeline but needs to be properly managed to be successful.

Why use a recurring billing system?

Recurring payments are automatic payments usually made monthly that allow customers access to a subscription product or service. For the business they offer regular reliable revenue, and for the customer they are convenient payments that they can essentially ‘set and forget’.

To create a successful recurring billing system, first collect information to accurately bill your customers at an agreed-upon time and price. Then create a system that accommodates the entire subscription lifecycle, making allowances for upgrades, downgrades, renewals and cancellations.

Your online recurring billing system will not only process initial payments but also store customer payment details and reuse them every time a bill is due: that’s what makes it so powerful. It’s the fundamental infrastructure that helps cultivate lasting and mutually beneficial customer relationships, and is an invaluable tool when it comes to building both loyalty and revenue.

How a recurring billing system works

Homegrown recurring billing systems are technically complex and need to be continually maintained to keep up with new product launches, pricing changes and expansion. An existing recurring billing platform, however, will allow you to start immediately and scale organically.

Before settling on a solution, ensure it can handle these basic tasks:

Accepting orders

Your recurring billing solution needs to integrate naturally with your internal systems and your path to purchase, allowing quotes and invoices to be issued and accepted automatically either online or in person. Recurring billing systems use APIs to generate subscriptions reliably and securely and then bill the customer concurrently at every payment interval.

Billing logic

If you offer one service only (for example, a subscription service for £10 a month), it’s easy to set up price- and time-based rules that charge customers correctly and automatically. However, if you provide multiple products and services, the billing system should be flexible enough to handle different pricing models, different products and different tiers of the same product.

Collecting payments

When customers are billed regularly, they expect the experience to be familiar and seamless. An easier process means more sales generated and better relationships with your customers. Ensure the billing system you use accepts multiple forms of payment and can operate internationally if your service is digital and online.

Growing revenue

Insufficient funds, expired cards and incorrect details can cause involuntary customer churn, a major problem for many subscription services. A recurring billing system reduces the risk of involuntary churn by sending automated emails to customers when cards expire or payments are declined. They will also retry failed transactions on a set schedule to further increase the chance of a successful payment.

We can help

Of course, building your own recurring billing system is incredibly complex and potentially expensive. This is why we always recommend teaming up with a payments partner to take care of all recurring payments. 

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. 

As it allows businesses to collect recurring payments directly from customer bank accounts via direct debit, it’s a solution that saves time and money when collecting regular payments. Indeed, according to one IDC study, businesses will get paid up to twice as fast when accepting GoCardless payments, and 97% of all GoCardless payments are successfully collected on the targeted date. 

Find out how GoCardless can help you today with one-off or recurring payments.