To bill, or not to bill, that is the question
There is a common misconception that recurring billing and recurring payments are one and the same thing – a misunderstanding that can have profound implications on the likelihood of subscription success. Dominic Smith runs through the key differences between billing and payments, and explains why companies embarking on a subscription model need to look carefully at their recurring billing needs to avoid a Winter of Discontent.
The issue of why or when does a subscription business need a recurring billing system is still one of the most common questions we are asked today, with many people unclear about the difference between recurring payments and recurring billing.
Much of the confusion comes from the fact that payment solution providers (e.g. Stripe, PayPal, etc) have been steadily broadening their capabilities to support subscriptions based on a recurring payment schedule, and some of them notionally call this ‘billing’! So, businesses that are setting out on their subscription journey are seeing 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 at the supermarket, you take your trolley to the checkout, where the items are scanned and the prices added up, combined with any special offers (e.g. buy one get one free) and a final total is calculated – the ‘bill’. The checkout assistant (or self-service kiosk) then asks you to make a payment using cash, card, Apple Pay / Google Pay, etc. It’s a two-step process: billing and then payment.
However, payments in a supermarket, restaurant or retail store are usually just one-off transactions. As soon as your business moves to a subscription model, where the customer pays for on-going access to a service or for regular, repeat orders, the process requires more sophistication and automation in order to manage these transactions and provide a seamless customer experience. 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 social network for athletes, which has a paid subscription for £6.99 per month. You register with 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. I’m a big fan of Strava, but there’s not really any ‘billing’ going on in a service like this, it’s the same price for everyone so doesn’t need any calculation.
From recurring payments to recurring billing
Recurring payment systems can operate independently, nevertheless someone or something needs to initiate the payment request and instruct the payment system how much to collect and how often. If one product one price is your subscription model, then this is pretty straightforward for the payment systems to manage as a simple subscription plan. However, the moment you move to offering a broader set of products and services and need to calculate and combine multiple charges, prorates, discounts, taxes 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 also provides the ability 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, auto-renewals, upgrades and cancellations), helping you to tailor your offerings to different market segments rather than being restricted to a one-size-fits-all subscription model.
These are just a few of the benefits that a good 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 a single account?
- …to be able to sell subscriptions, add-ons and one-off products?
- …to offer discounts and promotions?
- …to calculate prorates for partial billing periods?
- …to offer customers a choice of billing frequencies?
- …to bill at multiple levels in a corporate structure (billing hierarchy)?
- …to offer a choice of online and offline payment methods?
- …to account for revenue separately for each product / service?
- …to be able to negotiate payment terms with your business customers (e.g. net 30 days)?
- …to manage subscription contract periods and upgrade / downgrade / renewal rules?
- …to offer a consumption or usage-based pricing model, including prepaid bundles?
And if the answer to any of these questions is yes, either now or in your upcoming roadmap, then you should certainly be looking at specialist recurring billing software to support your subscription business.
Contact us now for a demo of Cerillion Skyline to see how recurring billing can help you fulfil your subscription ambitions.