What is Recurring Billing? [Eveything You Need to Know]

Running a business always requires having a plan B in place to back up failures and remain risk-free from losses. If you are one of those subscription businesses looking for a unique approach to breakthrough hard times, you must be dealing with questions like:

  1. What strategy or approach can beat the market competition for the product/services provided?
  2. How to create a consistent revenue stream for the subscription businesses that helps attain stability
  3. How to personalize customer experience for the existing business offerings and gain loyalty

You have landed in the right place if you are going through the above challenges. You can make your business scale and grow with subscriptions creating a cash inflow from recurring charges. Businesses around the world have started leveraging subscriptions to enhance revenue, create a loyal customer base, and sail through hard market situations.

This blog will help you gain an understanding of what is recurring billing and guide you to get started with the right information based on the success of leading businesses.

In around 12 minutes, you will gain an understanding on:

  • What is recurring billing and its benefits [with examples]
  • How recurring billing work
  • Steps to get started with recurring billing

Seems interesting? Let’s start.

What is Recurring Billing? [+1 Example]

Recurring billing is the amount collected (whether fixed or variable) automatically by businesses on set intervals for subscriptions.

Recurring billing is basically the automatic collection of the predefined amount for the use or access of a product or service at a set schedule. This implies that customers authorize you as a merchant or business to repeatedly charge a card. Everything starting from your monthly newspaper charges to daily milk delivery costs can be referred to as recurring charges.

To help you with a clear understanding of recurring charges, below is an example.

Netflix – A Popular Streaming Service Used in Every Household

Netflix is a popular name known to a large number of people across the world today. But, how it marked so much success and created its space? A simple answer is ‘using the subscription model’ and ‘recurring payments structure’.

Netflix has impressively leveraged subscriptions and doubled down on its business size and revenue with recurring charges. In fact, this is one of those streaming providers who have revolutionized the entire landscape of digital streaming and created scope for others.

Netflix offers different monthly subscription billing options to people who live together in a single household and earns from the recurring charges on its mobile, basic, standard, and premium plans. In fact, Statista report says that Netflix earned a revenue growth from $1.36 billion to over $26.7 billion in just 13 years. Additionally, there are 223 million active subscribers paying recurring charges monthly to this streaming provider. Isn’t it great?

Now you got clarity on the meaning and power of recurring charges? Learn about the benefits of recurring billing with 1 success story as an example to refer for better understanding.

5 Benefits of Recurring Billing [+1 Case Example]

If you are dealing with challenges related to customer retention, stability, and revenue recognition, then you can benefit from the recurring charges approach. Recurring charges bring consistent cash and ultimately attain stability. Below are some major benefits that can be achieved from recurring billing.

Recurring billing help:

  1. Improve customer retention with a hassle-free charging process and convenient payment solutions
  2. Boost customer experience with secured and worry-free transactions
  3. Attain greater control of revenue flow for the business owing to a predictable payment collection process
  4. Bring consistency into the payments and attain stability with cash inflow on a recurring basis
  5. Eliminate the scope of the guesswork out of budgeting with measurable metrics and data of active billing cycles

You need to leverage recurring payments to reap the above benefits. Recurring payments enable you to offer a personalized customer experience that in turn helps maximize revenue for your business and unlock the barriers of market competition.

This above success story in support of the benefits of recurring charges helped you understand the model and its use cases well enough. Now, it’s time to learn how recurring charges actually work (the implementation phase).

How Does Recurring Billing Work?

A business owner requires to have a merchant account to accept payments electronically from customers and enable recurring charges. Automatic recurring billing involve using processors or softwares that can manage and track recurring charges for multiple pricing plans.

Here is the simple 6-step process that goes for recurring billing.

#First: A customer chooses the recurring payment option for the subscription service you offer.

#Second: The customer agrees and accepts your terms of subscription billing and payments like the fee structure, payment schedule, and checkout process.

#Third: Customer signs up for the subscription plan by entering payment information for a secured transaction and allows permission to process recurring charges at set predefined intervals.

#Fourth: When a customer process transaction for recurring charges, the payment processor contacts the acquiring bank, the payment network, and the issuing bank. The funds are released to the business account only after all three parties approve the payment.

#Fifth: Everytime the business processes transactions for scheduled recurring charges, the customer receives a reminder to keep the bank account funded with the amount to avoid failed or missed payments. Also, once the transaction of recurring charges completes, an invoice is processed and provided to customers to notify about the payment success.

#Sixth: This recurring billing process and payment cycle repeats automatically at scheduled intervals.

From the above, you could understand the way recurring billing work for subscription companies. Explore the popular brands or businesses leveraging recurring billing to get more clarity on the process.

Popular Brands/Businesses Leveraging Recurring Billing

Industry Brand/Company
Automotive Audi and Porsche
Education Code Academy, LinkedIn Learning, and Coursera
Entertainment Netflix and Spotify
Software Adobe, Microsoft, and Dropbox
Healthcare Fitbit and Tonal
Media Content New York Times and National Geographic
Personal Services Dollar Shave Club
eCommerce Amazon Prime and Walmart

These popular brands or businesses have contributed immensely to the subscription economy and scaled at a lightning speed with consistent cash flow from recurring charges. Now, let’s give you a brief about how recurring billing works.

How to Get Started With Recurring Billing?

In the above sections, it is quite evident that recurring charges bring stability in the business with consistent cash flow for a set payment period. If the approach can be adapted rightfully, then your business can gain the growth desired and earn profits.

Let’s brief you about the steps to follow to get started with recurring billing.

Step 1. List down your core requirements for recurring billing.
Step 2. Research and find the most secure payment gateways for processing transactions of recurring billing.
Step 3. Choose a reliable, efficient, and feature-rich payments processor for managing your recurring transactions.
Step 4. Decide on the pricing model that works for you.
Step 5. Create a way for customers to pay you online.

If you want to learn in detail, we have written a blog solely to understand each step on how to accept recurring payments online.

Once you finalize the payment processor to use for managing recurring charges, you are all set to get started.

Now you got the basic idea of recurring charges with a complete guide to getting started. Let’s now have some common queries on this topic answered.

Once you finalize the payment processor to use for managing recurring charges, you are all set to get started.

Now you got the basic idea of recurring charges with a complete guide to getting started. Let’s now have some common queries on this topic answered.

Frequently Asked Questions About Recurring Charges

  1. What are the types of recurring charges?

    The types of recurring charges depend on two billing modules followed by subscription businesses. The two recurring billing modules involve:

    • Fixed recurring billing: This involves collecting the same amount of recurring charges at every payment cycle. For example, recurring charges for gym membership and newspapers.
    • Variable recurring billing: This involves collecting usage-based recurring charges on each payment cycle. Here the amount charged varies at every billing cycle. For example, recurring charges made for electricity and gas.
  2. How to stop recurring credit card charges

    To stop recurring credit card charges, you need to cancel the subscription with the vendor for the products/services enrolled. You can cancel your subscription either by yourself or by contacting the vendor. In case, your credit card is still getting charged at every schedule, then contact the credit card issuer. With regard to the latter, you will be required to raise a dispute support request

  3. How to eliminate the risks with recurring charges

    You can reduce the risk with recurring charges by following the below practices.

    • Ensure compliance with security policies like PCI DSS (Payment Card Industry Data Security Standards) and also align with the guidelines of the bank as well as the debit and credit cards issuers
    • Maintain and follow clear payment guidelines with set terms and conditions for cancellations
    • Set automatic reminders before collecting recurring charges from customers
    • Follow up with customers for their feedback on experience to understand and detect loops in your charging methods
    • Follow up with customers for their feedback on experience to understand and detect loops in your charging methods
  4. What are the things to consider before starting with recurring charges?

    There are 3 core things that you should consider before starting out with recurring charges.

    • Ensure compliance with security policies like PCI DSS (Payment Card Industry Data Security Standards) and also align with the guidelines of the bank as well as the debit and credit cards issuers
    • Ensure your products/services is fitting in for recurring charges (with some creative approaches this can be made possible, irrespective of the type of business)
    • While recurring charges will create a revenue flow for your business, it will require you to make some investments prior to getting started (so only make a move to recurring charges when you are ready to invest that initial amount)
    • Build customer experience with recurring charges to make sure they stay with you for longer

Get Started With Recurring Billing and Charge Your Customers for Consistent Revenue

With the above blog, you have gained a detailed understanding about recurring billing. So, now, are you ready to make the decision? With the subscription economy coming into existence, businesses have started realizing the need for a new approach to gain customer retention and the desired growth. This has doubled the requirement to set up a well-performing collection system for recurring charges. If you are willing to leverage recurring charges using a reliable and easy-to-use payment processor, then consider FacilePay. This app can make your life with daily payment acceptance easier.

Rakesh

Written by

Rakesh Patel

Rakesh Patel is the Founder and CEO of Facilepay (vBridge Technologies Inc). He has 28 years of IT experience in business strategies, operations and information technology. He has expertise in various aspects of business like project planning, sales, and marketing, and has successfully defined flawless business models for the clients. A techie by mind and a writer at heart, he has authored two books – Enterprise Mobility: Strategy and Solutions and A Guide To Open311.