Recurring billing is often mistaken for subscription billing. Find out where they differ as we unravel the subscription billing vs recurring billing confusion.
Every business experiences periods of market turbulence where sales may slow down. Recurring payments can cure this by their ability to generate predictable revenue.
You can say the same (and more) about subscription billing. So, would it be correct to say that subscription billing and recurring are the same thing?
They are not necessarily the same thing. Read on as we dig deeper into the subscription billing vs recurring billing conflation.
What is the meaning of recurring billing?
Recurring billing is when a business bills customers and takes money from their accounts at regular intervals for products or services they have agreed to receive.
It is an agreement between you and your customers where they agree to be charged at a specific date of every week or month for services provided during the preceding period.
The customer will supply you with their payment details so you can charge them on a predefined schedule. You do this to avoid seeking their permission whenever you charge them.
The amount of the recurring payment can be fixed or variable. As long as the customer keeps up with their payments, you will continue to supply the service or goods.
Recurring payments are usually paid for metered utilities like water, electricity, and gas, but they can be for anything, including:
- Gym memberships,
- Streaming service subscriptions,
- Phone bills.
The opposite of recurring billing will be a one-off invoice for a payment that happens only once. There is no need to set up recurring billing for such a customer unless they become a regular.
The main benefit of recurring billing is that it removes the administration overhead of manually typing in the customer’s payment details for every payment cycle.
What is subscription billing?
Subscription billing is a business model where you charge customers an automatic recurring fee to access a service, gated content, or regular supply of goods for a specified duration.
By signing up for a subscription, the customer is authorising you to keep their payment information on file so you don’t have to seek their authorisation every time a recurring payment is due.
Just as with recurring billing, subscription billing frequencies can be anything from weekly, monthly, to yearly. Examples of businesses that use subscription billing include:
- Streaming companies like Netflix and Hulu,
- Media businesses like The New York Times and Bloomberg,
- SaaS companies like Basecamp and Zoom.
Under a subscription billing arrangement, however, you typically charge the customer in advance. If the payment fails, the customer simply loses access. They will not be charged any penalty.
For example, you must pay your Netflix subscription at the start of every billing cycle (month). If the streaming company does not succeed in charging the payment method you supplied, the software will pause your account, which stops you from watching any of Netflix’s content.
So, where do subscription billing and recurring billing differ?
Subscription billing vs recurring billing – the difference.
Subscription billing and recurring payments are closely related but have a subtle yet significant difference.
Recurring billing is a model where businesses receive customer payments at predefined schedules. This includes subscription businesses, utilities, and membership clubs.
On the other hand, subscription billing is a more flexible payment model that offers customers a choice between plans with varying features and price points.
With the traditional recurring billing model used by utilities, the customer is charged after receiving or using a product or service. Failure to settle your bill may result in a fee or penalty and not necessarily withdrawal or interruption of service or supply.
So, the main difference between recurring billing and subscription billing is in their flexibility. Subscription billing is more flexible, with customers free to choose how frequently they want to be billed for what bundle of products and functionality level. They can also cancel their subscriptions at any time without incurring penalties.
Recurring billing is a more rigid payment model where customers, as part of the service contract, are billed at a specific schedule (typically monthly) for services rendered or commodities supplied. Since they are usually post-billed, there are usually penalties for not paying bills on time.
Optimise revenue and supercharge your business’s growth with subscription billing.
Recurring billing is how you manage or collect customer payments in a subscription business. In this case, subscription billing is customer-facing, while recurring billing is business-centric.
Subscription billing leverages the revenue potential of recurring payments while empowering customers with the freedom to choose how they want to be served, including the quantity or access level and functionality that meets their needs and budget.
Subscription billing, therefore, gives you the bandwidth to design offers that get to the heart of what customers want from your product or service.
The result is a business model that works for you and your customers. You get:
- Predictable revenue that enhances your cash flow and allows you to plan and scale more confidently,
- Greater insight into how customers use your product, allowing you to respond to their evolving needs timeously,
- Opportunity to grow revenue by cross and upselling existing customers on new features and products,
- Wider scope for personalisation, which boosts the customer experience and cultivates stronger, lasting relationships.
And customers get:
- The benefit of choosing product bundles that meet their exact needs and budget,
- The convenience of not manually checking out to renew their subscriptions at the end of every billing cycle,
- They can cancel and renew their subscription as their needs and budget allow.
These are all compelling benefits for shifting to a subscription billing system in your business. However, managing a subscription can be extremely difficult without proper infrastructure, seriously harming the customer experience.
Investing in subscription management software allows you to automate and take the pain out of managing a subscription business. This software automates recurring billing and will enable you to create and tailor subscription plans to your customers’ needs.
Save money by reducing the administrative overhead of manual billing, generate recurring, more predictable revenue, and build loyal customer relationships with Intasend’s automated billing and subscription management software. Sign up here or book a demo to get started.
