A guide to recurring billing

Do you have your utility bill set up where you make automatic payments each month? What about your Netflix subscription? These are both examples of recurring billing. You might not think much about it because it happens automatically, but how much do you know about how recurring billing works? We dive into that and more in this guide.

What is recurring billing?

Investopedia defines recurring billing, also sometimes referred to as subscription billing, as what occurs “when a merchant automatically charges a customer for goods or services on a prearranged schedule.”

How does recurring billing work?

There are two main types of recurring billing - fixed and variable. Each is used for a specific purpose.

Fixed recurring billing

Fixed recurring billing occurs when the customer pays the same amount for a product or service during each billing cycle. For example, a content streaming service such as Netflix or Hulu uses the fixed recurring billing model when they charge customers the same price for the service each month.

Variable recurring billing

In variable recurring billing, the amount the customer pays may vary with each payment cycle. This variation can be based on usage or quantity.

  • Usage-based billing: A type of variable recurring billing where the amount billed each payment cycle is based on the customer’s usage of the service. One common example is utility billing.
  • Quantity-based billing: A type of variable recurring billing where customers are billed based on an agreed-upon quantity. For example, if an organization purchases software licenses for its employees, they may be billed based on the number of “seats” or logins they need each month. This falls under variable recurring billing because the number of seats could change based on company needs.

Examples of industries that use recurring payments

Recurring payments are used across a variety of industries. In addition to the aforementioned utility and software industries, below are a handful of other industries that use recurring or subscription-based payments.

  • Entertainment - Streaming services such as Netflix and Hulu base their business model on recurring billing, with customers being charged monthly or annually.
  • Ecommerce - Subscription boxes such as Barkbox (dog toys) or Birchbox (makeup) send customers a box of goods each payment cycle, which is often monthly or quarterly.
  • Fitness - Many gyms operate on a recurring payment basis, charging customers a membership fee per month or per year.
  • Publishing - Magazine and newspaper subscriptions, whether in print or digital format, charge subscribers on a recurring basis.
  • Wineries - Many wineries offer wine club subscriptions, providing customers with a series of wine bottles on a monthly or quarterly basis.

Infographic showing industries that use recurring payments

Benefits of offering recurring payments

ISVs who provide recurring payment functionality to their clients are able to offer merchants multiple benefits.

Having payments set up to recur improves customer retention. It also helps ensure on-time payments, which helps merchants manage their cash flow. It lowers collection costs, and improves customer experience by saving customers time.

One area that merchants need to address when accepting recurring payments is the possibility of involuntary churn - customers having their subscription canceled due to a failed payment. This can occur when a card on file expires or is reissued because of card loss or fraud. Research shows that 20% of consumers have missed a subscription payment due to an expired card, and 41% of cardholders have had their card reissued due to expiration, loss or fraud.

To help merchants avoid the disruption and costs associated with customers’ lost and expired cards, ISVs should make sure they are able to offer their clients an automated card updating service. This service pings the credit card companies daily, receives the latest up-to-date card data, then automatically updates stored card information - resulting in fewer card declines.

Differences between recurring payments and installment payments

You may have also heard the term “installment payments” and be wondering if those are different from recurring or subscription payments - they are. Installment payments occur when, rather than paying for a purchase upfront in its entirety, a customer pays off the total amount owed in sections, or installments, until the total balance is paid. Installment payments are used in alternative financing methods such as buy now, pay later.

Installment plans have an end date - there will be a known date when the balance is completely paid. Recurring payments may not have an end date - they may continue until the customer stops services, such as in the case of streaming services like Netflix.


Customers have come to expect invisible payments, and recurring billing is another way to help make their experience quicker and easier, benefiting both customers and merchants alike. Contact us today to learn how we can help ISVs implement recurring payments for their customers.