Recurring Billing

Recurring billing automatically charges customers at regular intervals—monthly, quarterly, or annually—for ongoing access to products or services. When a customer subscribes to Netflix for $15.99/month or a company signs up for Salesforce at $150/user/month, recurring billing handles those automatic charges without requiring anyone to manually process payments each cycle.

Why Recurring Billing Matters

Subscription businesses live on predictable revenue. Recurring billing creates that predictability by automating the payment collection that keeps services running and revenue flowing. For finance teams, this means forecasting becomes possible. For customers, it means uninterrupted service without remembering to pay each month.

The model also fundamentally changes cash flow dynamics. A traditional software sale might bring in $50,000 upfront then nothing for years. A subscription model brings in $4,000/month indefinitely. That changes how companies plan, invest, and grow.

How It Works

Recurring billing requires three core components: a subscription agreement, stored payment credentials, and automated charge scheduling.

When a customer subscribes, they authorize future charges and provide payment information. The system stores those credentials securely through tokenization—the payment processor keeps the actual card details and gives the business a token to initiate charges. On each billing date, the system uses that token to process a payment.

The basic flow:

1. Customer subscribes and provides payment details

2. System stores tokenized credentials

3. On billing date, system initiates charge through payment processor

4. Payment succeeds or fails

5. System handles the outcome (retry failed payments, send invoice, update subscription status)

6. Service continues or gets suspended based on payment result

This simple flow gets complicated quickly. What happens when someone upgrades mid-cycle? How do you handle a customer in Germany paying in euros? What about usage charges that vary each month? Modern billing systems like Meteroid handle these scenarios while maintaining compliance with revenue recognition standards.

Billing Frequencies

Monthly billing dominates in SaaS and consumer subscriptions. Charges stay small enough to reduce sticker shock while providing steady cash flow. Most B2C subscriptions and many B2B SaaS products default to monthly.

Annual billing exchanges a discount for upfront capital. A company might charge $1,000/year instead of $100/month—giving customers 16% off while securing 12 months of revenue upfront. This reduces churn (people rarely cancel mid-contract) and improves cash flow. Enterprise software frequently pushes annual billing for these reasons.

Quarterly billing splits the difference, sometimes appearing in B2B contexts where procurement teams work on quarterly budget cycles.

Some businesses use custom periods. A weekly subscription box ships every week. Calendar billing (charging everyone on the 1st regardless of signup date) simplifies accounting at the cost of proration complexity.

Common Billing Models

Fixed Recurring

The simplest approach: charge the same amount every period. Spotify charges $10.99/month whether you listen to one song or ten thousand. The customer knows exactly what they'll pay. The business knows exactly what revenue to expect.

This works well when the cost to serve customers doesn't vary much with usage and when pricing tiers are based on features rather than volume.

Usage-Based Recurring

The amount changes based on consumption, but billing happens on a regular schedule. AWS bills monthly but charges based on compute hours consumed. Twilio bills for API calls. The billing cycle is predictable; the amount isn't.

This model aligns costs with value for customers who have variable usage patterns. Heavy users pay more, light users pay less. The business captures more revenue from power users while staying accessible for smaller customers.

Hybrid Models

Many businesses combine both approaches. A data warehouse might charge $99/month for the base platform plus $0.01/GB of data processed. The fixed fee covers infrastructure and access; usage fees scale with customer growth.

This balances predictable revenue (the base fee) with growth potential (usage charges increase as customers expand). It also provides natural expansion revenue without requiring customers to upgrade to a new tier.

Implementation Considerations

Payment Infrastructure

You need a way to securely store payment credentials and process charges. Payment processors like Stripe handle tokenization—you never touch raw card numbers. They give you a token that you can use to charge the card later.

The system must support multiple payment methods. Credit cards work for most B2C and small B2B. Enterprise customers often require ACH transfers or wire payments. European customers expect SEPA direct debit. Each method has different processing times, failure modes, and requirements.

Failed Payment Handling

Cards expire. Accounts run dry. Banks decline transactions. Payment failures happen constantly in recurring billing.

Smart systems implement retry logic. A basic approach: retry after 3 days, then 5 days, then 7 days. More sophisticated systems vary timing based on failure reason. If a card is expired, retrying in 3 days won't help—better to immediately request updated payment info. If the issue is insufficient funds, waiting a few days makes sense.

The difference between good and bad retry logic is measurable involuntary churn—customers who wanted to stay but couldn't because you failed to collect payment.

Proration

When someone upgrades or downgrades mid-cycle, you need proration math. A customer pays $100/month and upgrades to a $200/month plan on day 15 (halfway through). You charge them the $100 difference, prorated for the remaining 15 days (roughly $50), then bill $200 on the next cycle.

This gets complex quickly. Do you credit unused time from the old plan? Do you charge immediately or wait until the next billing date? Different businesses answer these questions differently based on their cash flow needs and customer expectations.

Tax Handling

US businesses deal with varying state and local sales tax rates. The rate depends on customer location, product type, and sometimes nexus rules. European businesses need VAT compliance across member states, with reverse charge mechanisms for B2B transactions. Digital services have special rules in many jurisdictions.

A billing system must calculate correct tax rates, collect appropriate amounts, and track what needs to be remitted where. This usually means integrating with tax calculation services like Avalara or TaxJar rather than building it yourself.

Revenue Recognition

Accounting standards (ASC 606 in the US, IFRS 15 internationally) require recognizing revenue as services are delivered, not when payment is received. A customer paying $1,200 upfront for annual service creates $100 in recognized revenue each month, not $1,200 on day one.

This means tracking deferred revenue, recognizing it over time, and handling proration when subscriptions change. Your billing system needs to integrate with accounting systems or provide the data they need to handle recognition correctly.

Common Challenges

Involuntary Churn

When payments fail for customers who actually want to continue service, you lose revenue unnecessarily. Cards expire, billing addresses change, accounts have temporary insufficient funds.

Reducing involuntary churn requires proactive credit card updating (many processors support automatic updates when banks issue new cards), smart retry logic, and clear communication. Send warnings before suspending service. Make it easy to update payment information. Some businesses save meaningful revenue just by improving this process.

Pricing Evolution

Businesses start simple and grow complex. You launch with three fixed tiers. Then you add usage components. Then custom enterprise pricing. Then geographic pricing variations. Then promotional discounts with expiration dates.

Many companies outgrow their initial billing solution. The system that worked fine for three fixed plans can't handle ten tiers with usage components and customer-specific discounts. Planning for pricing flexibility from the start—or choosing a system that handles complexity—prevents painful migrations later.

Global Operations

Operating internationally introduces currency conversion, local payment methods, varying tax regimes, and different invoicing requirements. A system that works perfectly for US customers may not support SEPA direct debits in Europe or local payment methods in Asia.

You also need to decide: do you charge all customers in USD and let them deal with conversion, or do you price in local currencies? Local currency pricing improves conversion but adds complexity in reporting and forecasting.

Reporting Requirements

Finance teams need accurate forecasts and actuals for planning. Revenue operations teams track MRR, churn, and expansion metrics. Product teams want usage data. Support needs subscription status and payment history.

The billing system must either provide this reporting directly or integrate with tools that do. Many businesses end up building data pipelines from billing systems to warehouses because the built-in reporting doesn't meet their needs.

Choosing Billing Infrastructure

Most businesses choose between building custom billing systems, using a billing platform like Meteroid, or relying on payment processor billing features.

Building custom makes sense when billing logic is a competitive differentiator or requirements are highly specialized. This requires significant engineering resources upfront and ongoing maintenance as the business evolves. Few companies truly need this, but some do.

Billing platforms like Meteroid provide subscription management, invoicing, revenue recognition, and integrations while still offering flexibility through APIs and configuration. This works for most SaaS businesses that need sophisticated billing without building everything from scratch.

Payment processor billing features (like Stripe Billing) integrate tightly with payment processing and work well for simpler subscription models. They may have limitations in pricing flexibility, revenue recognition, or reporting that matter as businesses grow.

The right choice depends on your pricing complexity, scale, compliance requirements, and engineering resources. Many businesses underestimate billing complexity and regret choosing solutions that can't grow with them.

When to Use Recurring Billing

Recurring billing makes sense when customers receive ongoing value between billing periods. Software subscriptions, infrastructure services, content access, and support contracts all deliver continuous value.

The model works less well when value delivery is episodic or when usage patterns are highly irregular. A customer who needs your service once a quarter probably prefers pay-as-you-go over a monthly subscription.

Some businesses force recurring billing when it doesn't fit because they want predictable revenue. This creates friction and churn. The question to ask: does this genuinely deliver ongoing value, or are we trying to force a subscription model onto a transactional product?