Recurring billing is the process of setting and executing on a specified schedule of creating and sending bills or invoices on a recurring basis.
There are two main types of recurring billing:
- Fixed: Fixed or regular recurring billing is the process of creating and sending bills or invoices on a regularly scheduled cadence.For example, a monthly bill from a movie streaming service like NetFlix would be considered a fixed recurrence of billing because it arrives on the same day each month and typically carries the same balance as defined by your service contract.
- Variable: Variable or irregular recurring billing is when you have a process of billing or invoicing that occurs on an irregular or variable cadence.An example of variable recurrence of billing would be when invoicing occurs on a basis that is not on a regular schedule and/or a recurring bill with varying balances that are based on usage of usage-, quantified, or metered service costs, like data center usage or number of emails sent.
Examples of recurring billing
- Subscription services like Netflix, or your local newspaper
- AI services building algorithms based on the size of the data set
- Utility bills like gas and water
- Security software against number of devices or attempted intrusions
- Data center services for databases or CPU usage
Advantages and disadvantages of recurring billing
The advantages of recurring billing include automated invoicing, giving your clients the option to pay in smaller installments over time, and the flexibility to change service or prices in between service recurrences (granted changes between billing recurrences are agreed upon with your clients).
The disadvantages of recurring billing are few: you aren’t guaranteed full payment upfront, and your clients have more flexibility to cancel or change services between service recurrences.
What are the challenges in recurring billing?
The challenges of recurring billing or recurring subscriptions are also the main disadvantages of recurring billing subscriptions: customers and clients have the flexibility to cancel or change services between billing recurrences, and you aren’t guaranteed full payment of services up front, making it harder to determine the lifetime value of a customer.
What steps can customers take to stop a recurring charge?
Stopping a recurring charge is dependent on your service agreement or contract with your service provider. If your service agreement includes a month-to-month contract, for example, you are able to cancel your recurring subscription billing by contacting your service provider to cancel your subscription ahead of your next billing recurrence.
However, that may not be the case. Depending on the contract with your service provider, you may be required to fulfill your subscription or contract to its agreed-upon duration is up, in which case you would be responsible for the remaining balance of your contract, or you may be able to pay a cancellation fee to break your service agreement.
It’s always best to check with your service provider about their cancellation policies prior to entering an agreement or contract with them.
What business types are best suited for a recurring billing model?
Recurring billing is typically most suited for subscription services, as a subscription inherently includes a recurring balance that needs to be paid in order to uphold a continuation of service.
For another example, while not necessarily considered a subscription, utility services are also well-suited for recurring billing as they are essentially recurring subscriptions to public utilities.
What is recurring billing software?
Recurring billing software or recurring subscription billing software is any system—typically modules of accounting, payment, or billing software—that automates the creation and deployment of bills and invoices on a regular or irregular recurring basis. For example, Sage Intacct includes 300+ options for recurring billing, including usage, rating, variable, fixed price, and services.
Are subscription and recurring billing the same?
Essentially, yes, subscription and recurring billing are interchangeable terms.
How to choose the right recurring billing system for your SaaS company?
We built a checklist for you to use with 100+ criteria to guide your decision: The Ultimate Checklist for Choosing Subscription Billing Software
How to deploy a recurring billing solution for your SaaS company
We built a brief video for the factors to consider in deploying a recurring, or usage, billing solution: Day in the Life of Saas Finops: How to Build and Forecast a Usage-based Model