You might think that recurring billing is a piece of cake; all you need to do is set up a simple piece of software to debit or charge a customer’s saved card or bank details for any subscription, and it’s as simple as that. Think again. There are many variables to consider when setting up recurring billing cycles and amounts for customers, and one surefire way to lose those customers is by consistently billing the wrong amount or at the wrong time, whether that be for software subscriptions, magazines in print, or whatever.

To be accurate in our definition, recurring billing is a term for a business model that enables subscribing customers to make regular automatic payments, without the need for them to intervene manually. They should simply receive an email saying something like: ‘Thanks, you paid us $xx today for your book club subscription [or whatever], thanks for being a valued customer.’

Recurring bill periods can vary from annual to monthly or even weekly, but one of the most important things when using recurring billing software is that the customer should feel in control of their own accounts, so they never have to be concerned about missing a payment or being levied with late payment fees.

Paying for Major Purchases in Installments

Recurring billing can be used for any product or service used regularly, for example, utility bills, subscriptions, professional association membership fees, pay-per-view content, or similar automatically renewing facilities. Recurring billing can also be used when a customer decides to take credit on a major purchase. With the cost-of-living crisis as it is, a customer might choose a car costing $10k, paying it off over two years at an interest rate of 5% – billed over 24 equal monthly installments of $437.50.

The main difference between simple subscription charges and recurring billing is that subscription payments always involve a recurring charge, whereas recurring billing doesn’t necessarily involve a subscription.  Another differential is that of fixed or dynamic price plans. Simple subscriptions will usually involve a fixed payment of $x 12 times per year until a new price is negotiated for the following year, whereas recurring billing can follow the ‘direct debit’ model of regular weekly, monthly or quarterly payments, but those payments don’t always have to be for the same amounts.

Another reason for differential pricing might be when the service provider offers consumption-based billing, where customers are charged based on their use of a service. Examples of this might be cloud storage space, Pay As You Go (PAYG) phone contracts, or anything where consumption differs from one billing period to the next and is metered.

Avoid Unpleasant Surprises

As mentioned above, one very important aspect of recurring billing models is that customers shouldn’t get nasty surprises. They should never be allowed to forget that they’ve signed up for a service. A common example of this is Amazon shopping. How many times have you bought something off Amazon and been offered a free trial of Amazon Prime, with no charge, so long as you cancel before the first monthly billing anniversary in 30 days’ time. You may well forget to cancel, then 30 days later, you get that annoying email – ‘Thank you for renewing your Amazon Prime benefits – which, in reality, you might well not have been bothered to access in any case.

Worse still, the way that annual pricing is advertised can sometimes be deceptive. Some companies might state: “Best value: $144 billed annually” but then offer the option of “12 monthly payments of $14” – thus implying by association that you can cancel the $14 payments with only a month’s notice. However, in reality, it’s still an annual contract, it just costs you $2 more each month for the privilege of paying over 12 installments. This is why it’s important to be absolutely clear about cancellation terms when offering a recurring billing service. 

The Truth Will Set You Free – And It’s Good for Business

By simply ‘doing the right thing’, being transparent, and ensuring that recurring billing is accurate and timely, companies can reduce churn, increase customer retention rates and even boost new customer acquisition.

Furthermore, good recurring billing software should be able to do more complex things than simply sending for regular payments. For example, the software should be able to calculate ‘proration’, which means adjusting a customer’s bill amount to reflect any plan changes made in the middle of a billing cycle. This might be where a customer cancels a service on the 14th of the month, but the billing anniversary is the 1st of each month; they should be charged for the two weeks (i.e. 14 days) of the current month plus the whole of the next one.

Another essential facility for recurring billing software is its ability to perform ‘dunning’, an automated process set up to follow a set of pre-defined steps to handle failed payments and declined credit cards. Automated dunning saves many person-hours if a human operator must phone a customer or start composing long emails reminding them to pay up.

Finally, any good recurring billing software should be able to consider variable rates for sales tax management and integrate with CRM and payment processing gateways like Salesforce and Shopify. Not only that, but integration with platforms like HubSpot and MailChimp is essential, to keep customers fully informed as well as just paying their bills every month.

If you thought recurring billing was a piece of cake, you could see there’s a lot required in the mix.

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