Recurring Billing: Definition, Types, & How to Get Started
Long-term, ongoing customers are a service business owner’s dream. They provide you with predictable income, reliable cash flow, and straightforward scheduling. But, only if you bill and invoice them properly.
Setting up automatic, recurring billing is one of the best ways to ensure your customers pay you in full and on time, all while taking administrative work off your plate.
What is recurring billing?
Recurring billing or invoicing is when you automatically invoice and send a bill to customers on a regular basis. Recurring billing is only relevant to your customers who require recurring work, like weekly lawn maintenance or house cleaning.
It’s usually made up of two processes:
- Automatically charging a customers’s credit or debit card
- Sending timely, predictable invoices
The most common recurring billing models are weekly, biweekly, monthly, and annual, depending on the services you provide and what makes the most sense for your service business.
The first type of recurring billing automatically withdraws payment from a customer’s preferred payment method, such as a credit card. You can do this using billing software that securely stores and saves a customers’s credit card information. Jobber’s credit card processing lets you do just that.
Pro Tip: It’s important to note that you must have a client’s permission to store their credit card information and automatically debit their account.
If your customer isn’t comfortable with automatic payments, you can use recurring invoicing with built-in payment methods to make it easier for customers to pay you as soon as an invoice is received.
For example, Jobber Payments has credit card integration that allows you to include a link to make a payment right in your invoices.
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What are the different types of recurring billing?
There are two main types of recurring billing: fixed and variable.
Fixed recurring billing is when the amount you bill a customer is the same for each billing interval. For example, if you charge $75 to mow a customer’s lawn and the cost doesn’t change from week to week.
A magazine subscription for your industry is a common form of fixed recurring billing.
Variable recurring billing is when the amount you charge a customer fluctuates within each billing cycle. For example, if you’re a house cleaner and your responsibilities for a client change from one appointment to another.
Utility bills for your office are typically variable recurring bills, where the amount you must pay is based on your usage.
What are the pros and cons of recurring billing?
Billing clients on a recurring basis has a number of benefits for your service business and your clients.
Recurring billing pros:
Offers consistent cash flow
Regular, predictable payments increase cash flow and provide you with consistent income. The more reliable your cash flow, the easier it will be to run your business and turn a profit.
Improves customer satisfaction
By providing automatic billing to your customers, you’re offering convenience and a professional customer experience.
Recurring billing means that customers don’t have to remember to pay bills themselves, allowing them to continue to benefit from your services without adding another task to their to-do list. The easier it is to work with you, the better your chances of boosting customer retention.
Helps to avoid payment collection and late fees
You have better things to do than chase after late invoices, and having to send overdue payment reminders can be tedious (and uncomfortable) for both you and your customers.
Invoicing on a regular schedule keeps you from having to worry about collecting payments and charging late fees. That way your clients don’t accrue interest charges or penalties because they forgot to make a payment.
Reduces admin tasks
Manually sending a monthly bill to each of your customers is a lot of work. Automatic, recurring billing saves you a ton of time each month by doing it for you. It will also reduce other administrative tasks like having to track payments and send email reminders.
Recurring billing cons:
With all of that said, recurring billing doesn’t work for every customer or service so it’s important to know its limitations.
You need permission to automatically charge customers
You can’t store or process a customer’s credit card information without first having their permission. Before setting up recurring billing, you will need to ensure your customers understand and agree to it. You can do this by explaining the process to them when you start working together and including information about it in their contract.
It doesn’t work for all payment methods
Recurring billing only works for certain payment methods, like credit cards and Visa debit cards. It doesn’t work for cash or checks, and, depending on your billing software it may not work with some online payment platforms like PayPal.
It’s harder to correct billing mistakes
If you accidentally overbill or underbill a client, a recurring billing process can make billing errors more tricky to fix. Since you won’t review the invoice before a client is billed, you won’t be able to make sure all of the information is correct. And since a customer won’t necessarily see an invoice before they’re billed, they won’t be able to notify you of any errors, either.
It’s not meant for one-time jobs
A recurring billing process only works for customers that need ongoing work, not one-time jobs. You’ll still have to invoice and collect payments separately on jobs without consistent billing intervals.
Recurring billing best practices
Establishing recurring payments is a big deal for your company. It means that your customers trust you enough to authorize automatic debits. That said, there are a few important best practices to keep in mind.
1. Receive written authorization of the automatic payments
A customer has to provide you with bank account or credit card information, but that’s not where your documentation should end. In addition to verifying their identity, you should:
- Provide a written outline of the amounts that will be withdrawn from a customer’s account
- Clearly show when they will be debited
- Include a schedule for future payments
Written authorization protects you during disputes and having a clear record of the agreed date of withdrawal or charge means you won’t have to cover any bank fees if a customer incurs any penalties due to a lack of funds.
2. Document one-off jobs separately and ask for permission
If you regularly maintain a customer’s air conditioning system, but you go in for a one-off repair, don’t assume you can go ahead and use the information on file just because you do so for the other work. You never know, they may want to use a different payment method.
Ask a customer’s permission before charging the payment method you have on file. Make sure to provide a separate invoice confirming the amount, due date, service provided, and payment method.
3. Send professional invoices
Regardless of whether your customers are recurring or not, you should always send regular invoices. Invoices provide documentation of your services and outline important information like how much is due, when payment needs to be made, and what services or products a customer is being billed for.
Invoices for recurring billing can also include details about a customer’s credit card payments, such as a partial card number and type so that customers know where they can expect to see a charge.
4. Give your customers options for when to pay
Insufficient funds are just as frustrating for you as they are for clients. Before setting up recurring billing with a customer, talk to them about what payment frequency works for them.
For example, if they’re more likely to be able to pay you in the middle of the month versus the end, you can set up a payment schedule that automatically debits their account on the 15th of each month instead of the 30th.
Be strategic with recurring billing and payments in your service business
Recurring billing is a great way to improve your cash flow and add autonomy to some of the administrative tasks related to your service business. But remember, it’s only beneficial in the right circumstances.
Be sure to confirm that your customers are on board with written permission, only use it for ongoing customers, and keep an eye on additional or canceled services to make it work for you. The right technology will make your new recurring billing process as smooth as possible.
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This post was originally published in June 2017. It was last updated on August 30, 2021.