Recurring Billing 101: How to get it right

Recurring payments have become a key part of business strategy for many. Whether you’re offering beauty boxes, SaaS, or digital courses, recurring billing has probably come up in your discussions – after all, it has proven to deliver predictable revenue and scalable growth.

With 99% of our merchants operating global subscription businesses, we want to share the essentials of recurring billing: how it works, why it’s effective for driving revenue, and best practices for setting it up for your own business.

What is recurring billing?

Recurring billing lets you automate payments on a fixed schedule, removing friction for customers and providing predictable revenue for your business.

Recurring billing means charging customers on a regular, predetermined schedule and terms for ongoing access to your product or service. It’s a straightforward process, but it does much more than just facilitate payments – it represents an entire system for managing subscription payments automatically. 

In contrast to one-time payments, where each transaction stands alone, recurring payments allow merchants to charge customers automatically according to agreed-upon terms, without the need for repeated checkout actions.  

What are the types of recurring billing models?

Whether you’re offering software as a service, membership access, or subscription boxes, there are a variety of recurring billing models that you can tailor to your needs:

• Daily billing: Used for high-frequency services or micro-transactions. A micro-transactions platform like TikTok can serve as a good example. 
• Weekly billing: Ideal for consumable products or short-term services. Blue Apron, for instance, charges weekly for meal kit deliveries.
• Monthly billing: The most common model for memberships and digital services. Netflix is a prime example, charging monthly for access to streaming content.
• Annual billing: Often offered at a discount to encourage long-term commitment. Spotify Premium uses this model, offering a discounted annual plan compared to the monthly option to lock in customers for the year.
• Usage-based billing: Charges vary based on actual consumption metrics. AWS (Amazon Web Services) is a classic example of this.
• Tiered subscriptions: Different service levels at different price points. Think Dropbox.

Many businesses blend these models. For example, you might offer a base subscription with additional charges for premium features, creating a hybrid approach.

How does recurring payment work?

Recurring payments are straightforward: a customer signs up once, and the payments are charged automatically and repetitively:

1. Customer subscribes at the checkout: Your customer selects their preferred subscription plan, enters their payment details, and agrees to the terms. This triggers the setup for automatic payments, which is based on the chosen billing cycle. Here’s what it might look like:

2. Billing starts: The first payment is automatically processed on the agreed date. After that, recurring charges are made on the same date at regular intervals, without the customer needing to do anything.

3. Company sends invoice and receipt: After each payment, the system automatically generates and sends an invoice and transaction receipt to the customer. This keeps everything transparent and ensures proper documentation for both parties.

Once you understand the mechanics, the real impact becomes clear: recurring billing can reshape how your business manages revenue and retention.

What are the benefits of recurring billing for subscription merchants?

In the subscription space, recurring billing is a lifeline for the business, and for good reasons. 

Predictable revenue and cash flow

Subscription-based recurring bills create stability that traditional retail models can’t match. By setting a fixed schedule for payments, you can predict cash flow with much greater accuracy, helping you make more informed decisions about reinvestment or running day-to-day operations.

Convenience for customers

The recurring billing model is predictable and, therefore, very convenient for both customers and merchants. Customers don’t have to think about the upcoming bill payments and inputting their payment information multiple times – they can just “set it and forget it.”

As long as the customer sees the value in your offering and your communication is clear and upfront (we touch on this below), it typically leads to a higher lifetime customer value and lower churn rates. The more you can reduce payment friction and keep customers satisfied, the longer they’ll stick around.

Learn how subscription payment experiences affect your customer relationships in our survey Success with subscriptions.

Easier payment handling for merchants

With recurring billing, you automate manual payment management, saving time and reducing the risk of errors. It also improves profitability by reducing administrative costs.

Key administrative benefits:

• Elimination of manual invoicing and payment processing
• Reduced accounts receivable management time
• Automated revenue recognition and accounting
• Minimized the need to chase late payments
• Streamlined reconciliation of payment records

This leads to fewer payment headaches as your customer base grows, and more time spent on growth initiatives.

What are best practices for managing recurring billing?

To make recurring billing work effectively for your business, consider these best practices:

Be transparent about your pricing and T&C

Make sure customers know what they’re signing up for, how much they’ll be charged, and when. Send them reminders of upcoming charges and clear notifications if something goes wrong.

Implementation tips:

• Display pricing and renewal terms prominently (don’t hide it in fine print). Use bold text or a summary section in the order summary. 
• For trials, use a checkbox or an initial next to the terms, as some card networks require explicit cardholder consent for recurring charges after a trial. (Visa and Mastercard have compliance rules mandating this for free trials – make sure you meet them.) 
• Make sure the total price and currency are clear for the first charge and subsequent charges. Avoid any misleading phrasing like “Just $1” if that is only a trial fee and the user will owe more later – always clarify what happens after the “$1”. 
• If you have a terms of service document, summarize the critical billing info in a quick blurb at checkout anyway. Don’t rely on “they could have clicked our T&Cs” – surface the key points. 
• Save a record of the user’s agreement to the terms (e.g., store the checkbox timestamp, IP, etc.). It could become compelling evidence if they dispute the charge. 

If you’re operating under a subscription model, ensuring compliance with Visa and Mastercard requirements is crucial for your business’s success and security. Check out our short PDF guide on the key VISA/Mastercard requirements for subscription merchants. 

Make cancellation painless and instant

If a customer wants to cancel, let them cancel. The cancellation flow must be dead simple, self-service, and quick. Any friction or trickery here is practically begging for a chargeback down the line. 

Merchants sometimes hide the cancellation option to save churn, but that almost always backfires as disputes, angry complaints, or regulatory trouble. 

Best practice: Offer online cancellation in a couple of clicks, with immediate confirmation. The user should be able to go to their account (or a manage subscription link from the receipt email), click “Cancel Subscription,” maybe complete a brief optional survey or confirmation, and that’s it. 

Their subscription is canceled, effective either immediately or at the end of the period, with no further charges. 

Handle payment failures and retry logic

Failed payments are a reality of recurring billing for many; the key is to minimize the impact. Implement smart retry logic, give customers a simple way to update payment details, use network tokens, and regularly analyze failure patterns to identify core issues. 

We break down in detail how to handle failed payments in our Guide to recovering failed payments.

When things go wrong, a polite, proactive approach can help recover failed payments and keep customers satisfied. Effective dunning management (when you communicate with customers about payment issues) can recover 15-40% of failed payments that would otherwise result in lost subscriptions. 

Ensure you’re PCI-DSS сompliant

The Payment Card Industry Data Security Standard (PCI-DSS) provides requirements for securely handling credit card information. For recurring billing, compliance is particularly important since you’re storing payment credentials for extended periods.

To meet PCI-DSS standards, ensure you’re using a compliant processor and that all sensitive customer data is encrypted and tokenized. Regular security audits and keeping your team up to date on best practices will also reduce the risk of a breach.

Learn more in our PCI-DSS compliance guide.

How to set up recurring billing?

The answer depends on your current payment setup. Setting up recurring billing is about choosing the right payment processor and establishing a system that works for your customers, your business, and your long-term goals:

• Choose the payment processor that supports recurring transactions: Most major payment providers can process recurring transactions and provide critical features like payment retry logic and security protocols.
• Integrate with a subscription management platform: Unless your payment provider already offers a subscription management suite, you might need to integrate with a dedicated subscription management platform. It will help handle billing cycles, plan management, and customer communication, and provide automatic card updater services.
• Configure billing terms: Set up clear billing schedules – daily, weekly, monthly, annually, or whatever works best for your customers.
• Automate communication: Set up confirmations, notifications about upcoming charges, and alerts if there are any issues with payments.

When considering implementation options, they must:

• Easily integrate with your existing systems
• Be flexible in handling different subscription/recurring models 
• Support international payments and currencies
• Provide comprehensive reporting and analytics features
• Be compliant with security standards and regulations

Things to consider when setting up global recurring billing

If you plan to sell globally, a few more considerations come into play. 

Offering local payment methods

Every market has a different payments playbook. Not every market uses credit cards as its go-to payment method, so supporting local payment preferences is essential for keeping conversion rates high. For example, in Brazil, PIX is common, PayPal is the #1 choice in the US, BLIK dominates in Poland, and so on. 

Multi-currency support is a must

You’re not doing yourself any favors by forcing customers to deal with currency conversion. Offer pricing in their local currency and make sure your system automatically adjusts for currency fluctuations. That’s the way to reduce confusion and avoid chargebacks.

Handling tax compliance

Different countries (and states) have different – and constantly changing – rules on tax, especially regarding digital products. Getting this wrong leads to fines, so make sure your payment system or tax solution can automatically apply the correct tax rates based on the customer’s location.

Payment performance & cost will depend on your payment stack

When you go global, payment acceptance and transaction costs become a big factor that affects your revenue. You need local acquiring in your target markets to keep payments running smoothly and cut down on transaction costs. 

Plus, being able to route payments to the best PSP or acquirer based on success rates, fees, and regional preferences is crucial for keeping your conversion rates high and your payment setup optimized as you grow.

Lastly, deal with the local laws: For example, the EU requires clear customer consent for auto-renewals, and in some places, you have to notify customers before renewing their subscription. Not complying can lead to regulatory issues and customer complaints.

Some global companies address this by partnering with a Merchant of Record (MoR) who handles global taxes, compliance, and payment regulations on their behalf. 

Read more about this model here: Is the Merchant of Record (MoR) model right for your business?

Recurring billing FAQs

What is a recurring payment?

The recurring payment model allows businesses to charge customers automatically and repetitively, based on a pre-set schedule and conditions. 

What are the benefits of recurring billing for businesses?

Recurring billing is convenient for both customers and businesses. It offers merchants predictable cash flow, improves customer UX and leads to better customer LTV, and reduces the administrative burden by eliminating manual invoicing. The recurring payment model also creates long-term customer relationships by providing consistent, uninterrupted service.

What are some examples of recurring billing models?

You’ve definitely come across recurring billing models in your everyday life. Think streaming services like Netflix or Spotify, or even gym memberships, which all rely on fixed monthly payments. Then, there are freemium models, like Canva, YouTube Premium, or LinkedIn Premium, where you get basic access for free and can upgrade to a paid version for extra features. And of course, usage-based models are common in services like AWS and phone plans, where you pay based on what you actually use.

Can I customize the billing cycle for my customers?

Yes, recurring billing is highly customizable. You can offer different billing cycles and even create flexible plans that allow customers to upgrade, downgrade, or pause their subscriptions at any time.

What happens if a payment fails?

A failed payment doesn’t mean the customer is lost. Most recurring payment systems have built-in retry logic to automatically attempt payment again. The best practice is to have automated dunning campaigns in place, which notify the customer right away and provide them with an easy way to update their payment details to ensure minimal disruption.

How do I manage recurring billing for international customers?

Selling internationally adds complexity; you need to consider local payment methods, currencies, tax regulations, and compliance. Make sure your payment processor supports multi-currency transactions and offers local payment options for each region you sell to. Also, be aware of local tax laws to ensure you’re charging the correct rates.