DEFINITION of 'Recurring Billing'

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 permission one time up front, then continues until the cardholder withdraws permission. 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.

BREAKING DOWN 'Recurring Billing'

The main benefit of recurring billing for consumers is convenience. Instead of having to repeatedly provide credit card information for a routine charge, the cardholder can authorize the merchant to keep the card details on file and charge the card each time the merchant delivers 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.

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, then have to pursue 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.

Many services only allow customers to sign up if they agree to recurring billing. For example, credit monitoring service agreements often require the customer to agree to be charged for the service every month, indefinitely, unless they explicitly cancel the service. In this way, recurring billing can help merchants with customer retention, although customer retained through recurring billing is not always a happy customer; it may just be a customer who has forgotten about the recurring purchase or doesn’t want to deal with the hassle of canceling it.

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.

Recurring billing doesn’t eliminate all administrative tasks, however. For example, merchants will need to contact consumers about updating their payment information if a credit card is about to expire or an attempted recurring charge is declined by the credit card issuer. Merchants that offer recurring billing as a way to minimize administrative expenses may want to make it easy for consumers to manage their billing information and preferences online, so they can easily change the credit card on file, opt out of a service before a free trial converts to a paid subscription, or cancel an unwanted subscription.

RELATED TERMS
  1. Billing Cycle

    The interval of time during which bills are prepared for goods ...
  2. Billing Statement

    A periodic report that credit card companies issue to credit ...
  3. Descriptive Billing

    A type of credit card billing that includes the date, merchant's ...
  4. Cycle Billing

    The practice of billing different customers based on a scheduled ...
  5. Automatic Bill Payment

    A money transfer scheduled on a predetermined date to pay a recurring ...
  6. Processing Date

    The month, day and year when a merchant’s bank processes a credit ...
Related Articles
  1. Personal Finance

    Automating Your Bill Payments

    Automation can be a painless (and free) way to remove the stress of bill scheduling from your life - if you do it right.
  2. Personal Finance

    Procrastinator's Guide To Bill Payment

    Avoid punishing late fees and keep your credit score intact with these 10 tips.
  3. Managing Wealth

    Should You Pay Your Bills On Autopilot?

    Now that you can sign up to have your bills paid automatically online, it it a smart way to make your life more efficient? A look at the pros and cons.
  4. Personal Finance

    8 Steps To An Organized Financial Life

    Disorganization makes planning difficult, and that can cost you big time. Follow these 8 steps to an organized financial life.
  5. Personal Finance

    The History Of Consumer Credit Rights

    The Fair Credit Billing Act of 1974 gave consumers the power to dispute credit card charges.
  6. Investing

    Bill of Exchange

    A bill of exchange is a document used in international trade to pay for goods or services. It is signed by the person promising to pay, and given to the person entitled to receive the money. ...
  7. Investing

    How American Express Counts on Your Profligacy (AXP, MA)

    Consumers like novelty, reliability, variety, and other subjective qualities. But what really keeps them coming back to American Express is convenience.
  8. Personal Finance

    What Does a Merchant Bank Do?

    A merchant bank is a financial institution that performs underwriting, loan services, financial advising and fund raising services to large corporations.
  9. Personal Finance

    The Simple Way Financial Advisors Pay Their Bills

    Using this simple bill-paying strategy will help ensure your bills are paid on time each month.
  10. Trading

    The Life Of A $20 Bill

    Next time you pull a $20 out of your wallet, consider where it has been.
RELATED FAQS
  1. What is the difference between a bill of exchange and a bill of lading?

    Understand what a bill of exchange and a bill of lading are and the different purposes they each serve as documents used ... Read Answer >>
  2. Should I pay my mortgage with my credit card to earn credit card rewards?

    If you try, in order to earn cash back rewards, you'll discover that your options are extremely limited and are unlikely ... Read Answer >>
  3. Are 'gray' credit card charges legal?

    Read the fine print and all credit card statements carefully to avoid misleading charges that often go unnoticed on credit ... Read Answer >>
  4. Can you pay off your Best Buy credit card in store?

    Learn how you can pay your BestBuy credit card in stores using cash or check. You can also pay by mail, online or over the ... Read Answer >>
Trading Center