What is recurring billing? 7 Examples for SaaS businesses
Manual billing can be tedious and often requires repetitive tasks, constant reminders, and frequent follow-ups for late payments. However, recurring billing takes care of all of this by automating everything from invoicing to payment collection. You might want everyone locked into multiyear contracts for ease of calculating revenue, but you may be able to sign a larger number of customers by giving some leeway. At each billing cycle, a bill is calculated and generated and sent to the customer. When the customer makes their payment, the business must apply that payment to relieve the accounts receivable. In the B2B space, depending on the customer agreement, invoices might require a specific format, level of detail, and related purchase order.
With Stripe automatic billing, once a customer provides their payment details and consents to recurring charges, Stripe manages the rest. This approach not only fosters steady cash flow for businesses but also offers convenience and consistency to customers. It is similar to a subscription system in many ways but doesn’t necessarily involve the pricing tiers that a subscription system may include.
Note that recurring billing is suitable for any type of business, not just subscription businesses, although it is predominantly used by subscription businesses. If you’re running a business with a small number of clients, manual billing is manageable. You’ll spend hours creating invoices, sending payment reminders, and waiting for payments to come through. Both methods are designed to ensure you get paid, but they operate in entirely different ways.
It is a common and convenient approach used by various types of businesses to collect payments for services that are provided on an ongoing or periodic basis. Recurring billing can occur on a daily, weekly, monthly, quarterly, or annual schedule, depending on the nature of the service or product. With fixed recurring billing, customers are charged the same amount at regular intervals (e.g., every month), providing predictable revenue. In contrast, variable recurring billing charges customers based on their usage, making it ideal for businesses where the payment model can fluctuate, like utility or cloud storage services. It is an automated payment process where customers are charged on a regular schedule for products or services. Instead of manually generating invoices each time a payment is due, businesses can use recurring billing software to set up periodic charges – weekly, monthly, or annually.
Customers pay based on which tier they fall into, and they may move between tiers as their usage or needs change. Analyzing recurring payment data can also help businesses identify growth opportunities. Recurring payments are an effective way to streamline billing processes and improve cash flow. However, managing these payments can be challenging without the right tools and processes in place. If meters or usage calculators are also in place, billing and payments will online bookkeeping adjust to the exact rates a customer uses during each billing cycle.
Subscription logic is made up of time-based and price-based rules that, together, accurately charge your customers on a predetermined cadence. recurring billing It should also support your current sales motion and any potential business models in the future. Does a sales team manage new user outreach and renewals, or is your product or service sold online via a self-serve model? Do you have a finite set of standard products or are most of your orders customised?
Switch to Tofu and automate your billing for faster payments and smoother operations. To learn more about value-based pricing, check out our Pricing Strategy ebook, our Pricing Page Bootcamp (it’s free!), or learn more about our price optimization software. For merchants, predictable and reliable revenue simplifies every aspect of doing business. Recurring billing works best when your clients know exactly what they’re signing up for. Be upfront about what’s included, the payment frequency, and how they can make changes if needed.
In the fixed recurring billing model, customers are consistently charged the same amount every billing cycle. Businesses that offer services at a standardized rate often adopt this method. Subscription billing is a business payment model where customers are billed at regular intervals for access to a product or service. This approach facilitates ongoing revenue for businesses and convenience for customers. With variable (or irregular) recurring Payroll Taxes billing, the amount you collect might change with each payment cycle. The amount in question may depend on how often the customer uses the service or product, like with a utility bill.
Recurring billing is a steady source of reliable income that helps you anticipate cash flow. It ensures prompt payment from customers, helps with cash flow, lowers billing and collection costs, and automates a portion of accounts receivable. It can also improve customer satisfaction by making it more convenient for the customer to do business with a company. Subscription and recurring billing are often used interchangeably as they both refer to storage of a customer’s payment information and automatic charging of the customer on a recurring basis. Subscription plans may have multiple pricing options and customers are able to adjust their plan higher or lower depending on their needs. In recurring billing, the payment mechanism does not change regardless of the pricing plan.
