What is Recurring Billing? - Requirements for a Recurring Billing Software

Recurring billing powers the subscription economy, delivering convenience for customers and predictable revenue for businesses. 

It offers customers a "set-it-and-forget-it" experience, eliminating missed due dates and service interruptions. Businesses benefit from steady cash flow and streamlined operations.

In this blog, we’ll explore what recurring billing is, how it works, its challenges, the best practices to navigate them, and how to choose the right recurring billing software, comparing top options.

What is recurring billing?

Recurring billing is a payment model in which businesses charge customers at regular intervals—weekly, monthly, quarterly, or annually—for a product or service, often as part of a subscription model. While subscriptions refer to the customer's ongoing commitment to a service, recurring billing refers to the system that facilitates this relationship. 

This process goes beyond collecting recurring payments. It includes billing, calculating taxes, handling payment failures, prorating charges when customers upgrade or downgrade, and ensuring compliance with global regulations.

Recurring billing supports two types of recurring payments:

• Fixed recurring payments: Customers pay a consistent amount regardless of usage (e.g., Dropbox offers tiered plans with fixed prices based on features and storage).
• Variable recurring payments: Charges vary based on usage (e.g., Zoom bills for optional add-ons like the Large Meetings feature to increase participant capacity).

A robust recurring billing system is essential to handle both payment types seamlessly. 

Steps involved in recurring billing 

The goal of a subscription model is to get the customer to opt into a recurring billing relationship. Here’s how recurring billing works:

1. Subscription agreement: The customer signs up or finalizes a custom contract with the sales team, agreeing to terms like payment frequency and number of installments.
2. Invoice generation: The system creates an invoice detailing the charges.
3. Payment reminder and collection: The billing solution sends the customer a reminder, including a payment link, to ensure timely payment and prevent service interruptions. Payments are securely processed through methods like credit cards, ACH, or digital wallets. The billing system automates retries for failed payments to minimise revenue loss.
4. Receipt generation: After payment, the system generates and shares a receipt with the customer for transparency.‍
5. Invoice reconciliation: The recurring billing system tracks and reconciles invoices to monitor paid, partially paid, and outstanding amounts.

Benefits of recurring billing 

Adopting a recurring billing model offers numerous advantages for your B2B SaaS company:

1. It ensures predictable revenue by securing consistent payments and fostering long-term customer relationships.
2. With a steady cash flow, businesses can better forecast revenue, enabling improved financial planning and investment in growth initiatives.
3. Recurring billing streamlines tasks like invoicing, payment collection, and tax calculations, reducing manual intervention and improving operational efficiency.

What are the key requirements for a robust recurring billing system?

Let us break down what it takes to build an efficient recurring billing solution.

1. Pricing flexibility

Companies must ensure their recurring billing system supports varying pricing models, such as tiered and volume pricing, usage-based pricing, milestone-based pricing, base fee and per-unit pricing, API-call-based pricing, and custom discounts. It should also allow for customization options that automate the most complex billing workflows, reducing manual work hours (and days) every billing cycle and enabling sales/product teams to experiment with pricing.

2. Integration with the existing tech stack

A recurring billing solution should seamlessly integrate with your existing accounting systems, such as QuickBooks or NetSuite, ensuring smooth revenue synchronization. It should also integrate with your CRM/CPQ system to provide seamless data flow across sales and finance.

3. Usability without engineers

Use a recurring billing system that can scale with business growth–adapting to new pricing models, customer segments, and additional products or services–without significant engineering support.

4. Churn management and analytics

All SaaS companies face churn issues—whether voluntary (where a customer ends a subscription on their own) or involuntary (when a customer wants to make a payment but their payment attempts fail). 

Research by Forrester shows that 41% of businesses have seen increased involuntary churn. However, 32% of those affected have not adopted tools to improve payment success rates.

An automatic recurring billing solution with a dunning system retries failed payments, notifies customers, and allows them to automatically update payment details easily to minimize involuntary churn. 

Your billing solution should also recognize earnings at every stage of the business and equip you with real-time reports on key metrics like churn rate and Customer Lifetime Value (CLTV) to keep your business's financial health in check.

5. Payment options and error handling

Handling changes in subscription plans mid-cycle can be complicated, especially when prorating charges for upgrades, downgrades, or add-ons. A robust billing system should automatically manage prorations to ensure customers are charged correctly. Customers should have a self-serve portal to manage subscriptions, reducing friction. 

Your billing system should also integrate with popular payment gateways to support multiple payment methods, such as credit cards, ACH payments, and bank transfers. It should also automate processes like invoice splitting, backdated and advance invoices, prepaid and postpaid payment terms, credit notes, and refunds. Dunning systems can further reduce missed or late payments, maintaining consistent revenue flow and minimizing errors.

Should you build your own online recurring billing system?

Building an in-house recurring billing system may seem appealing for companies with a small client base (fewer than ten) needing quick invoicing. With substantial engineering resources, you can build a solution to issue invoices and ensure timely payments, focusing on immediate functionality.

However, in-house billing systems pose challenges like operational inefficiencies and higher costs as the business grows.

In a recent webinar where we hosted Mountu Jinwala, who built billing systems for Netflix and eBay, he emphasizes evaluating your long-term needs:

Identify users who will handle invoicing, usage tracking, and payment follow-ups. Assess their technical skills to determine the need for automation and usability. Ensure the system supports usage metering, integrates data, and works with both prepaid and postpaid models. Verify it includes automation, dunning features, and compliance with accounting workflows and regulations.

While building in-house may seem efficient in the short term, buying software for recurring billing can avoid future inefficiencies and inflated costs.

10 best recurring billing software in 2024

Read about the best recurring billing solutions of 2024, designed to automate invoicing, manage collections, and track revenue at every stage. 

Unlock growth for your B2B SaaS business with Zenskar, the top choice for those seeking efficiency and scalability in their subscription management.

Set up recurring billing for your SaaS company with Zenskar

As you scale, you need a system that supports global expansion, adapts to evolving pricing models, and ensures flexibility in your billing strategies. Zenskar offers all that and more, making it easier than ever to manage your subscription business. Its no-code, drag-and-drop editor gives your finance team complete control, eliminating dependence on engineering and enabling faster, more efficient operations. The built-in dunning system further enhances efficiency by minimizing missed payments, reducing churn, and boosting cash flow.

It equips you with a powerful, scalable platform to handle complex billing scenarios—whether usage-based pricing or custom-tiered models. With built-in features like seamless integration with your existing tech stack, and a 360° view of your business through ready-to-use reporting dashboards, Zenskar is more than just your billing software; it's your business's growth partner.

Take an interactive product tour to see us in action. Or, book a custom demo to learn how we can help streamline your recurring billing.

FAQs

1. Are subscription and recurring billing the same? 

Subscription billing refers to a business model where customers pay for access to a product or service. Recurring billing automates regular subscription payments.

2. What is better, monthly or annual subscriptions?

Monthly subscriptions offer flexibility and easier customer acquisition. In contrast, annual subscriptions boost retention, revenue predictability, and cash flow with the added benefit of discounts.

3. What are some recurring billing examples?

Recurring billing examples include B2B SaaS platforms like Zoom and Snowflake, API tools, subscription services like Netflix, and utility bills billed regularly.

4. Is recurring billing limited by any pricing model?

Recurring billing is compatible with diverse pricing models, including subscription-based, tiered, usage-based, hybrid, and freemium.