Recurring Billing: When Can A Recurring Charge Be Applied?

April 10th, 2024 by Felix Cheruiyot

When Can A Recurring Charge Be Applied

If you leave it up to them, some customers may not pay you on time or at all. Learn how to prevent revenue leakage and boost your income with recurring billing.

The subscription economy will be worth an eye-watering $1,5 trillion by 2025. Most of that revenue will be generated through recurring billing, which has long been the default payment model for subscription businesses.

Recurring billing improves payment convenience and security for customers and generates recurring revenue, which ensures stable, predictable cash flow for subscription businesses.

The rapid growth of subscription businesses, outpacing the S&P 500 by 4.5 times, underscores the financial efficiency and numerous business and customer benefits inherent in the recurring billing payment model.

However, some businesses will not fit the recurring billing model. Before integrating it into your business operations, it's essential to grasp the fundamentals of recurring billing, including its definition, functionality, and applicable scenarios. This article serves as your crash course on recurring billing.

What is recurring billing?

Recurring billing is a payment collection model in which a business automatically charges customers at predefined intervals. The standard for managing subscriptions, recurring billing ensures customers are billed accurately and on time.

Also called automatic billing, recurring billing improves payment convenience for customers by taking away from them the task of manually completing payments and assigning it to a billing software that processes them automatically. They provide their payment information once and have all subsequent payments automatically processed on an agreed cadence.

A recurring revenue or subscription business must obtain permission from customers before it can make recurring charges on their supplied payment method. Customers retain the right to withdraw that permission and stop the recurring charges.

What are the benefits of recurring billing?

Recurring billing enables businesses to collect recurring customer payments, producing recurring revenue. When implemented by a subscription business, recurring payments ensure that you receive payment before supplying the product or providing the service, guaranteeing revenue.

Recurring billing removes the risk of missing payments or incurring the added costs of chasing unpaid invoices. Because you collect payment in advance, you also know the minimum revenue you will collect at the start of each billing cycle, making it easier to plan your expenditures.

Sales will roll in like clockwork as long as the customer does not cancel their authorization for you to bill them automatically and their supplied payment method has sufficient funds. In other words, recurring billing guarantees predictable revenue from your repeat customers, stabilising your cash flow.

From the customer's perspective, recurring billing automates the process of making payments to continue receiving a product or service. For an essential product or service, the benefit goes beyond mere convenience to ensuring uninterrupted supply.

So, by offering the option of recurring payments, you improve the subscription experience for your customers. That will breed loyalty in your customers, making it easy to retain them.

What is the difference between recurring billing and invoicing?

Recurring billing means automatically charging customers and collecting payment at predefined intervals, while recurring invoicing is where you automatically send invoices at a pre-set frequency.

Recurring invoicing does not automatically charge the customer's payment method. The customer still has to make the payment. In other words, recurring invoicing only sends invoices on specific dates to notify customers that a payment is due.

When can a recurring charge be applied?

Recurring billing is suited to any business that offers its products or services on a recurring basis. Examples include streaming services like Netflix, newspaper subscriptions, gym memberships, utilities like water, electricity, and waste collection.

Most suitable for utilities and monopolies created and protected by legislation.

Recurring payments are easiest to enforce when backed into a supply contract. These are usually utilities consumers cannot get anywhere else or result from legislation-enforced monopolies, such as piped water and grid electricity.

For non-essential products and services for which customers have many suppliers to choose from, you have to be careful how you implement recurring billing. Customers must be convinced that opting in is convenient for them.

Practical where customers buy repeatedly.

Recurring payments prove beneficial when catering to numerous repeat customers. A satisfied repeat customer, reliant on your product and content with its quality, will value the convenience and security offered by recurring payments for ensuring a steady supply.

Crucially, you must also establish the frequency at which your repeat customers buy, which will be the basis for the billing cycle you choose.

Recurring payments are impractical if most of your sales are from one-time purchases or customers who only buy occasionally.

Essential for products and services offered as a subscription.

Recurring billing is a huge time saver and revenue optimisation tool for businesses that follow the subscription model. Used with a software solution like Intasend, recurring billing automates the entire payment collection workflow, eliminates invoicing errors, and streamlines dunning management.

Subscription and SaaS businesses will be difficult to run without an automated recurring billing solution, considering their recurring revenue premise.

So, whatever product you sell as a service—whether digital or physical—you will run a more efficient, profitable, and resilient business if you use a recurring billing payment collection model.

Customers now accept that recurring payments are the only way to buy or access certain products or services. They know that most subscriptions require agreeing to a recurring payment contract.

However, your job is not necessarily easier because consumers have learned to live with the reality of recurring payments. Competition is also growing as more businesses explore ways of offering subscription options, attracted by the prospect of recurring revenue.

The difference between customers choosing your business over others is the quality of your product or service and the overall customer experience. That is the challenge that every subscription business must overcome.

Should you give customers the option to turn off recurring payments?

Recurring billing makes life easier for both your employees and your customers. However, most subscription relationships eventually end because customers no longer need or afford your product or service.

Whatever customers' reasons are for cancelling their subscriptions, you should not make it hard for them to do so. You should add an option to cancel as an account management option, not least because the law requires you to, but also because customers can find other ways of cancelling their subscriptions.

You should also remember that not all cancellations are motivated by frustration over the product's value or the quality of the subscription experience.

Some customers churn because a work transfer makes your service or product inaccessible. Others can't afford to continue the payments because they lost their jobs. All these are customers who would happily come back if their circumstances improve.

Hence, it's imperative to provide an option for cancellation and another for customers who prefer to pause their subscriptions. By keeping them on your email list and sending regular reminders, you can encourage them to resume their subscription when they're ready.

Put your recurring billing on autopilot with Intasend.

Recurring billing requires reliable automated payment software to streamline invoicing and payment collection. With Intasend's automated billing and subscription management software, you can put your billing and subscription management on autopilot, saving you and your customers time.

Automating your recurring payments also improves billing accuracy, speeds up payment processing, reduces billing stress, and boosts payment security, all of which enhance the customer experience.

Automating recurring billing with Intasend boosts your capacity to collect more recurring revenue. Sign up here to get started right away, or book a demo with one of our recurring billing experts.

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