Commerce Glossary

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What is Recurring Billing? Definition, Advantages, and Models

re - cur - ring bill - ing
Recurring billing stands for the repeated or regular payments that subscription companies charge from their active user base’s cards. In effect, recurring billing refers to scheduled, periodic automated payments that are made for subscription to a service or a product. The automatic recurring credit card billing happens electronically, through the business’ payment processor, rather than in the brick-and-mortar retail setting. SaaS recurring billing supplies a steady flow of predictable, prompt income for the business, and offers the customer an easy way to pay for products and services they buy and use on a regular basis.
How Does Recurring Billing Work?

The SaaS business requires one of two things in order to set up recurring billing. Either a recurring billing merchant account is needed for deposits from credit and debit cards (processing and securing solutions are not provided, however), or the merchant will need to outsource the process to a payment service provider who processes and deposits the funds, all with strong security measures that observe recurring billing laws in place, into the merchant’s account. All recurring billing is handled electronically, so either route is acceptable.

Establishing recurring billing with customers is very easy. First, the customer chooses the recurring payments option when they make their product selection to purchase on your website. After accepting the terms and conditions and receiving an authorization, the customer then provides their payment information and agrees to the amount they will pay.

From there, on a yearly, monthly, weekly, or even daily schedule, the merchant charges the customer remotely for an agreed-upon amount. Recurring billing schedules can have an expiration date, or they can be set up to continue indefinitely until the customer makes a change. Many businesses may require that customers sign up for recurring billing, sometimes offering a price markdown as an incentive. Each time a merchant processes a customer’s recurring payment, they usually notify the buyer via email or text.

Recurring billing can be either fixed or variable. When it is fixed, the customer is charged the same amount each time. With variable recurring billing, the payment amount depends on the cost of the services the customer uses during the payment period — their individual usage.

Recurring billing is beneficial to both the SaaS business and the customer. The merchant benefits from enhanced customer retention, lowered administrative costs, and fewer accounts receivable risks; recurring billing also provides businesses a reliable cash flow they can count on. Depending on a business’ commitment to sustainability, recurring billing can also cut down on paper, printing, and delivery, all of which have a negative impact on the environment. The customer saves time and effort with the recurring payment option, and it means they are less likely to miss a payment and have an interruption in their service.

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