What is recurring billing?

Definition and examples of recurring billing

How recurring billing works

Advantages and disadvantages of recurring billing

Alternatives to recurring billing

Definition and examples of recurring billing

Recurring billing is an agreement that allows a company to automatically collect a fee from your account on a regular basis for a bill or service. Both companies and customers can benefit from recurring billing to cover recurring payments for services or subscriptions.

How recurring billing works

Recurring billing simplifies the payment process for companies and customers, as customers can automatically pay the amounts due according to a set schedule such as daily, weekly, monthly, or yearly. A recurring billing agreement can be set up directly with the company online, over the phone, or in person using a payment form.

To set up a recurring billing agreement, you must provide your payment information to the company, then specify the payment amount and payment period if that option is available. Depending on the service, the agreement can end on a specified date or after a set number of payments, or it can continue indefinitely as long as you remain a customer. Once the agreement is in place, the company can process the payment as agreed without needing further information from you.

A gym membership is another example of a service that benefits from recurring billing. You can provide your bank account details to cover the monthly subscription payment until your contract ends, if any, or until you cancel your membership.

Advantages and disadvantages of recurring billing

Advantages:

• Timely payments: Payments are processed automatically on the specified date, eliminating late fees and other consequences of late payments.
• Time-saving in bill payment: You can eliminate the time spent sending payments by mail or paying bills online.

Disadvantages:

• Errors can be easily overlooked: If an incorrect amount is charged to your account, you will have to find the error and deal with the company to correct it.
• Cancelling recurring billing may take time: You may need to make a phone call or send a message to cancel the recurring billing.

Note: You can stop a recurring billing payment by requesting a stop payment through your bank, but the bank may charge a fee.

Alternatives to recurring billing

If you do not wish to set up recurring billing directly with the company, there are other options:

• Online bill payment through your bank: Many banks and even prepaid debit cards offer automated bill payment, allowing you to manage multiple bills in one place. Instead of subscribing to recurring billing directly with the company, you can set up a recurring bill payment through your bank by providing the company’s information, the amount, and the due date.
• Prepaid gift card: You can purchase a gift card to cover the cost of subscriptions to many music and video streaming services. Once the card balance is loaded onto your account, the service uses the card balance instead of charging your bank account or credit card.

Summary:

Recurring billing allows companies to save time by automatically collecting payments from customers on a regular basis. Customers benefit from timely payment and a more efficient bill payment process. Companies must obtain permission before charging an amount to your credit card or checking account and must provide you with a copy of the agreement. Authorization requirements for credit cards are limited to subscriptions that begin with a free trial period.

References:

Chase. “Set Up Automatic Payments.” Accessed Sept. 14, 2021.

Consumer Financial Protection Bureau. “How Do Automatic Debit Payments From My Bank Account Work?” Accessed Sept. 14, 2021.

Consumer Financial Protection Bureau. “§1005.10 Preauthorized Transfers.” Accessed Sept. 14, 2021.

Visa. “Trial Subscription Updates.” Page 2. Accessed Sept. 14, 2021.

Source: https://www.thebalancemoney.com/what-is-recurring-billing-5201298