Could a subscription model for your invoicing be the best option for you? Helping to keep your revenue flowing, avoiding overdue invoices and late payments, switching to a recurring billing system can provide you with numerous benefits.
In fact, recurring billing can be a lifeline for subscription businesses.
In this post, we explore `what is recurring billing`, how it works, and the different types your accounts department could encounter.
Recurring billing definition
Recurring billing is when you offer a subscription product or service that your customer signs up to and is then invoiced/billed on a regular basis, depending on the length of the plan.
This charge could be monthly, quarterly, or annually, with bills automatically set up and issued on time as scheduled.
In essence, recurring billing is where you charge a customer’s credit card or bank account
for products or services on a regular schedule, up until the point that the customer cancels.
Businesses from various sectors and operating in various industries use recurring billing as this type of invoicing system is an excellent option if you offer your customers a regular subscription to a service or product.
For example, gym subscriptions, pet food subscriptions, internet services, magazine subscriptions, etc.
How does recurring billing work?
A customer will opt to purchase your subscription offer, filling in their details and inputting their chosen payment option.
Once the transaction is authorised, regular payments will be set up and taken from the customer’s chosen payment type.
Invoices and receipts should then be automatically generated so all information is transparent and recorded.
Once this information is processed, with the right automated accounting systems in place, the billing will move to your accounting and reporting, allowing you to see your revenue.
Recurring billing puts you in control over your billing and invoicing schedules, helping you to effectively manage your revenue and cash flow, reducing the risk of late payment of invoices.
You are also responsible for setting the pricing model, and you can set a lower price for regular scheduled payments. Think about the payment schedule, payment amount, payment process, and how this will be managed, and the customer’s payment information, how you will gather and store it responsibly.
Billing types
Monthly billing is thought to be more flexible and risk-free, and there is often a low barrier to entry for customers.
Annual billing, on the other hand, requires a long-term commitment; however, most businesses prefer this option as it removes the need for monthly invoicing, freeing up additional resources, making it less time-consuming, and annual subscriptions can help to boost cash flow as you receive large sums of money in the bank at one time.
Types of recurring billing
Fixed recurring billing – the customer is charged the same amount on a set schedule.
Pay as you go – the customer is charged an amount based on their usage of the product or service, i.e., a household’s water bill can vary during the course of the subscription depending on usage.
Tiered billing – customers have the option to choose which subscription package they would like to buy into—for example, basic, standard, or premium packages.
Hybrid billing – this type of billing system is a combination of fixed and pay-as-you-go.
It’s about finding the best type of recurring billing system for your business systems and processes. A one that helps to reduce the administrative burden of invoicing and allows you to build a loyal customer base.
Benefits of recurring billing
- Predictable revenue – you know how much money is coming into the business and when.
- Gives you space for your teams to upsell and cross-sell, generating additional revenue and sales.
- Recurring billing is convenient. Convenient for the customer as once everything is set up, they are ready to go, and convenient for business as with automation, billing can happen regularly and consistently.
- Takes the effort out of invoicing.
- You can personalise recurring billing.
- Offers revenue stability.
- Improves operational efficiency.
- Helps to streamline processes.
Drawbacks of recurring billing
- Customers can cancel at any time, so it’s essential that you have reserves to cover your business costs and have accounting processes in place when an invoice appears as `invoice not paid`.
- Setting up recurring billing is more complex than receiving a one-off payment.
- Be aware, recurring billing can be unscalable.
- Late payments do still happen, and you need to have processes in place to manage these instances.
(Make sure to check out our post on “what is a supplier invoice“ to read more.)
Company not paying invoice
Even when opting for recurring payments, businesses must still keep on top of their payment cycles. Monitoring and managing these so you can follow up on any late payments as soon as possible.
Recurring billing can be the perfect option for those offering ongoing services and subscriptions. Helping you to safeguard your cash flow and allow your business to better forecast income, look to automate your billing system today.
Call our team on +447860197476 and see how we can help your commercial business thrive.