Recurring Payments or subscription billing? Key differences explained.
  1. The Helcim Blog
  2. Merchant Guides

Recurring Payments or subscription billing? Key differences explained.

Author Image

Robert Luong | October 29, 2024

“Discover the differences between recurring payment and subscription billing to choose the best option for your business.”
8 min read
  • Content

    As a small business owner, managing payments can feel like an endless task—chasing down payments, juggling different billing cycles, and hoping your customers pay on time. Imagine instead if those payments just happened automatically, like clockwork, while you focused on growing your business.

    This is where recurring payments come into play. Yet, many business owners still mix up subscription billing and recurring payments, often using the terms interchangeably. In this article, we’ll clear up the differences between recurring payments and subscription billing and show you how they can create a steady revenue stream and simplify your payment processes.

    What is a recurring payment?

    A recurring payment is a type of transaction where customers give your business permission to charge them at regular intervals—such as weekly, monthly, or annually. Once set up, these payments occur automatically, without requiring the customer to manually make each payment.

    For example, an accounting firm might use recurring payments to bill clients for ongoing services like monthly bookkeeping. This system ensures businesses maintain a steady cash flow, while customers enjoy the convenience of not having to track and remember each due date.

    automatic recurring payments dashboard

    What are different types of recurring payment models?

    Recurring payment models generally fall into two categories: fixed recurring payments and variable recurring payments. Both types allow businesses to automate billing, but they differ in how the payment amounts are structured.

    1. Fixed recurring payments

    With fixed recurring payments, the customer is charged the same amount at regular intervals, such as weekly, monthly, or annually. This type of payment is commonly used for services like gym memberships, streaming subscriptions, or SaaS tools, where the price remains constant for each billing cycle.

    2. Variable recurring payments

    In contrast, variable recurring payments fluctuate based on usage or other factors. For example, a utility company might charge customers differently each month depending on their energy consumption, or a mobile phone provider might bill based on data usage. With this model, customers are billed according to what they’ve used during the billing cycle.

    What is subscription billing?

    Subscription billing is a fixed recurring payment model, where subscription businesses charge customers regularly for ongoing access to a product or service, often with different levels or features tailored to the plan they select. For instance, a software company might use subscription billing to offer different pricing tiers, with each tier granting different features.

    This model is widely used in industries like software-as-a-service (SaaS) and media streaming, where customers pay a recurring fee to maintain access, while subscription businesses benefit from predictable revenue streams.

    What are the pros and cons of recurring payments?

    1. Pros of recurring payments

    • Recurring payments provide businesses with a steady, predictable income, making it easier to forecast cash flow and plan for growth.
    • By automating payments, businesses can minimize late or missed payments, reducing administrative follow-up and creating a smoother payment experience for customers.
    • With recurring payments, businesses can focus on retaining existing customers rather than constantly chasing new ones. Customers tend to stick around longer since they don’t need to manually make a payment each time.
    • Recurring payments businesses offer various pricing and billing frequency options, catering to different customer needs.

    2. Cons of recurring payments

    • If customers feel they aren’t getting enough value, they may cancel their recurring payments, which can impact revenue.
    • Managing recurring payments requires reliable billing infrastructure that handle different billing cycles, retry failed payments, and manage payment details.
    • New customers may hesitate to commit to recurring payments if they’re unsure about the value provided or if the cancellation process isn’t clear and straightforward.

    Sign up Helcim recurring payments

    Which business should use recurring payment models?

    Recurring payments and subscription billing models are ideal for businesses that offer ongoing services, products, or memberships. Here's a breakdown of which types of businesses should consider using these models:

    1. Professional services: Accounting firms, consulting agencies, and other service providers offering continuous support can use recurring payments to automate billing, ensuring predictable income.
    2. Software-as-a-service (SaaS) companies: SaaS companies that offer online software or services, such as project management tools, CRM systems, or web hosting services, often offer subscription plans. Customers typically pay monthly or annually for different tier plans based on features or usage levels.
    3. Streaming services: Customers pay regularly to access content from streaming service platforms like Netflix or Spotify. Netflix has different tier plans with the cheapest one being an ad and the standard plan or above being ad-free.
    4. Membership-based businesses: Gyms, yoga studios, and other membership-based businesses are perfect for automated recurring payments. Members are charged monthly or annually to maintain access to facilities or services.
    5. Subscription businesses: Subscription business model, such as meal kits, skincare products, or specialty goods, can use recurring payments to send products to customers on a regular schedule.
    6. Online learning platforms: Companies offer ongoing education or access to course libraries, like Udemy or Skillshare, and have subscription billing plans that users pay regularly to access different courses.
    7. Media and news publications: Online newspapers, magazines, or content platforms (like The New York Times or Medium) often use subscription billing to charge for premium content or ad-free experiences. Recurring payments ensure readers maintain access to exclusive material.

    Should you set up a recurring payment system?

    The range of businesses using recurring payments and offering subscriptions is vast—and it’s only growing. In the U.S. alone, recurring payments are expected to generate $830 billion in transaction volume by 2025, showing just how widely accepted and valued these billing models have become among customers.

    To decide if a recurring payment system is right for your business, ask yourself these questions:

    • Do my customers need regular access to my products or services?
    • Could automating payments help reduce delays or missed payments?
    • Would a recurring payment system save time by reducing manual billing tasks?
    • Is my service consistently priced each billing cycle?
    • Does my business model involve different levels or tiers of service for customers to choose from?

    If you answered yes to some of these questions, a recurring payment tool could be a valuable addition. Not only can it reduce payment delays, but it also lightens your administrative load, allowing you to focus on growing your business and delivering top-notch products and services to your customers.

    How to set up a recurring payment model for your business?

    Set up your recurring payments with Helcim

    Setting up a recurring payment system is easier than you might think. It starts with choosing a payment processor—a service that handles your payments and securely transfers money from your customers to your account. The right payment processor should offer flexible subscription tools, so you can customize plans and accept multiple payment methods (credit card, debit card, ACH). Here’s how to set up your system:

    1. Select your payment processor

    Most payment processors offer basic features, like automated payments, billing schedules, and subscription management tools. Many charge a monthly fee, but options like Helcim Recurring Payments tool offer these features with no monthly fees, contracts, or hidden charges.

    Helcim also offers helpful features for payment recovery. For example, if a transaction fails, Helcim automatically retries it. If a customer’s card expires, you’ll receive a notification so you can get updated information.

    2. Create an account with your payment processor

    Once you've selected your recurring payment processor, create a merchant account to get started. Many payment processors now offer online sign-up, so you don’t have to go through extensive paperwork. The approval time frame varies by provider, ranging from a day to a few weeks, but some providers, like Helcim, may approve new applications in under 24 hours.

    Sign up Helcim recurring payments

    3. Create your recurring payment plan

    Let’s say you decided to sign up for a Helcim account. Once your account is set up, you can create the subscription plan with different pricing tiers you want to offer. You can customize the following details:

    • Price and billing frequency (weekly, monthly, etc.)
    • Setup fees, if any
    • Expiration dates or term lengths
    • Payment options (credit card or ACH)
    • Tax settings based on location
    • Automated email notifications for customers

    4. Add clients to your plan

    After setting up your plans, you can securely save customer payment details in your Helcim account and enroll them in a plan. Alternatively, if you prefer self-service, you can embed your subscription plan on your website, allowing customers to sign up directly.

    5. Bill your clients

    Once your subscription plan is set up and clients are enrolled, the billing process is fully automated. On the scheduled billing date, your payment processor will collect the agreed amount from your client’s bank account or credit card and deposit it into your bank account.

    FAQ

    What is the main difference between subscription billing and recurring billing?

    Recurring payment is a type of transaction, while subscription billing is a structured payment model based on recurring payments. Subscription billing regularly charges customers for ongoing access to a product or service, often with different levels or features tailored to the plan they select.

    How do recurring payments work?

    Recurring payments work by automatically charging a customer’s payment method at set intervals, like weekly, monthly, or annually, based on the service or product they’ve subscribed to. Once the customer authorizes the business, the recurring billing system collects the payments without the need for manual payment processing, ensuring a seamless billing experience.

    What types of businesses benefit most from recurring payments?

    Businesses that offer ongoing services or regularly delivered products benefit most from recurring payments. This includes membership-based businesses like gyms, subscription box companies, online learning platforms, and professional services such as bookkeeping.

    How do trial periods work in subscription billing models?

    Trial periods in subscription billing allow new customers to experience a service for a set period before committing to a paid plan. During the trial, customers typically have access to standard or limited features, and at the end of the trial, they’re automatically billed if they decide to continue using the service.

    What happens if a client’s payment method expires during a recurring payment plan?

    If a client’s payment method expires while they’re on a recurring payment plan, the transaction will usually fail, and they’ll be notified to update their payment details. Systems like Helcim Recurring Payments automatically retry failed payments and notify merchants about expired payment details so they can quickly inform clients.

    It's time to feel good about your payments.

    Sign up instantly with no paperwork or commitments.

    Call to action background version 2 image

    We're always
    here to help.

    New to accepting card payments? We take the time to help you understand how it all works so you can make the best decisions for your business.

    • Speak to a real person, fast
    • Experts you can trust
    Show more

    Have us contact you.

    Contact name cannot be blank
    Business name cannot be blank
    Please provide a valid email address
    Phone number cannot be blank

    The form was sent successfully!