What is Recurring Billing

Recurring billing happens when a merchant automatically charges a cardholder for specified goods or services on a prearranged schedule. Recurring billing requires the merchant to get the cardholder’s initial permission during the original purchase. The vendor will then automatically issue recurring charges the cardholder's account with no further permissions needed.

Any good or service that a customer purchases repeatedly and regularly might be a good candidate for recurring billing. Examples include cable bills, cell phone bills, gym membership fees, utility bills, and magazine subscriptions.

The Convenience of Recurring Billing

Recurring billing offers the benefit of convenience. Instead of having to provide credit card information for a routine charge repeatedly, the cardholder can authorize the merchant to keep the card details on file. Then, the merchant can charge the card each time they deliver the agreed-upon goods or services.

For example, a consumer could set up an order with an online pet store to have three bags of dog food delivered every three months. Authorizing recurring billing would let this purchase happen automatically on a regular schedule.

Recurring Billing Limitations

A drawback of recurring billing for consumers is that it can be more troublesome to correct a billing error. Instead of receiving a bill, noticing a mistake, then refusing to pay the bill until the mistake is corrected, the consumer may be automatically billed for the incorrect amount, requiring additional time to obtain a refund. It’s safest to agree to recurring billing for payments that are always about the same amount and occur on a predictable schedule because you’re more likely to quickly notice a billing error.

Recurring billing can also add expenses for customers who forget about the charges. Some people will pay their credit card bills without reviewing each listed charge. They could be paying for a service they no longer require or didn't even know they were getting. Recurring and automatic billing is also pointed to as the source of scamming seniors.

Advantages for Merchants

Many services only allow customers to sign up for services if they agree to recurring billing. For example, virus software and credit monitoring service agreements often require the customer to agree to be charged for the service periodically. They require the customer to cancel the service, or it will continue, indefinitely. In this way, recurring billing can help merchants with customer retention.

Recurring billing has several other benefits for merchants. It ensures prompt payment from customers, helps with cash flow, and lowers billing and collection costs by eliminating paper bills, and automating a portion of accounts receivable. It can also improve customer satisfaction by making it more convenient for the customer to do business with that company.

However, recurring billing doesn’t eliminate all administrative tasks. For example, merchants will need to contact consumers about updating their payment information if a credit card expires or the credit card issuer declines an attempted recurring charge. Merchants that offer recurring billing should make it easy for consumers to manage their billing information and preferences online. A well-designed system will allow the customer to easily change the credit card on file, opt-out of service before a free trial converts to a paid subscription, or cancel an unwanted subscription.