What is recurring billing?
When a customer is charged by a vendor for a good or service on a prearranged frequency, this is recurring billing. The vendor and the customer agree to the frequency, the service or product provided, and the price. The vendor collects payment information and permission from the customer and then automatically makes recurring charges to the customer’s account, under the terms of the agreement, with no further permission needed.
Recurring billing has been around for decades, with cable companies, gyms, and publishers being the early players, and now SaaS companies, streaming services, and subscriptions of all types comprising today’s players. The automation and predictability advantages of the subscription-based business model come with the relatively new revenue recognition and ASC 606 compliance requirements.
Recurring billing software is meant to help companies with a subscription business model simplify and automate their billings while providing a compliant framework of financial controls to meet ASC 606 and IFRS 15 regulations.
There are two main types of recurring billing, fixed and variable. Variable means the customer may have different charges each month depending on their usage or consumption for the month. Fixed means the charges remain the same each month.
One way companies with subscription business models benefit from recurring billing is more predictable revenue. There can be disadvantages as well according to Investopedia. In all cases, you will want processes and a system in place to maximize value and minimize risk.