Recurring Billing or Recurring Payments? Deciphering Subscriptions – Part 1

Recurring Billing or Recurring Payments? Deciphering Subscriptions – Part 1 In the world of subscriptions, there’s a common misconception that recurring billing = recurring payments. Dominic Smith discusses the differences between billing and payments, and explains why businesses that are planning to launch subscription services need to look carefully at their recurring billing needs.

When talking about subscription management, one of the questions we’re frequently asked is why or when does a business need a recurring billing system? This usually stems from the fact that some payment solution providers (e.g. Stripe, PayPal and others) now offer the ability to support simple subscriptions based on recurring payments and in fact some of them even describe this as ‘billing’! So, businesses that are first embarking on a subscription-based service model are getting mixed messages about what they may need.

In its simplest form, billing is a process of calculating a price for products / services and making a request for payment; whereas payment itself is the process of transferring money from the buyer to the seller for the products / services consumed. So, for example in a restaurant, you ask for the bill at the end of your meal – this is calculated at the till; and then you pay in cash or using an electronic payment method such as credit card or Apple Pay, for example.

 

Subscription Management

However, restaurant payments are usually just one-off transactions. As soon as your business moves to a subscription model, where the customer pays periodically for on-going access to a service, the process requires more sophistication and automation in order to manage repeated transactions. For example, payment details need to be stored (securely!) and subscription terms need to be managed which specify and control the frequency of charging. This is where recurring payments come in to play.

A simple example of this is say Strava, the cycling / running app, which has a premium version for around £5.99 per month. You simply register your credit card and are then charged automatically each month until you cancel. They don’t send out bills and they don’t even send you a payment notification, it just appears on your credit card statement once a month. Strava is great, but there’s not really any ‘billing’ going on in a service like this.

 

From Recurring Payments to Recurring Billing

Recurring / automatic payment systems can operate independently, nevertheless someone or something needs to tell them what payment(s) to take. If one product one price is your subscription model, then this is straightforward and the payment systems can manage this. However, the moment you move to offering a broader set of products and services and need to calculate and combine multiple charges, discounts, tax and any usage or overage fees, then a recurring billing system is required to automate the process and build a scalable business.

Recurring billing software can also give you the flexibility to offer your customers a choice of payment methods (e.g. credit card, direct debit, PayPal or bank transfer), a choice of billing frequencies (e.g. monthly, quarterly, 6-monthly or annual) and the ability to manage and enforce contract terms (e.g. minimum periods, upgrades, cancellations and renewals), helping you to target different market segments rather than being restricted to a one-size-fits-all subscription model.

These are just some of the benefits that a recurring billing system can bring to your subscription business.

 

Recurring Billing Checklist

To help you decide if you need a recurring billing system, we’ve collated some key questions you need to ask of your subscription business plan. Do you need…
  • …to bill multiple subscriptions on the same account?
  • …to be able to sell subscriptions, add-ons and one-off transactions?
  • …to offer special promotions and discounts?
  • …to offer customers a choice of billing frequencies?
  • …to bill at different points in a corporate structure (billing hierarchy)?
  • …to offer customers a choice of online and offline payment methods?
  • …to account for revenue separately for each product / service?
  • …to be able to negotiate payment terms (e.g. net 30 days) with your business customers?
  • …to manage contract periods and renewal rules for your subscriptions?
  • …to offer a consumption or usage-based pricing model?
And if the answer to any of these questions is yes, then you should certainly be looking at recurring billing software to support your subscription business.


Comments
Dominic Smith
Thanks Richard. The difference should already be clear to people who work inside the billing or payments industry; the challenge is generally for new businesses entering the market who are seduced by the marketing spin of some of the payments companies :)
23/01/2017 11:07:42

Richard Price
Great article Dominic, having worked in both Billing and Payment's industry I understand how it is not clear to many the difference between the two. I also think there is far more room for recurring Billing and too much time is spent on trying to make payments super sophisticated when a lite Billing engine would suffice.
22/01/2017 13:43:23