As a business owner, you’re constantly looking for ways to save time and increase efficiency. One great way to do this is by setting up automation for your payments. Not only does this type of automation save valuable time, but it also ensures that important payments don’t get lost. The difference between recurring payments and recurring invoices, however, can be a little confusing.
Although they might sound the same, recurring payments and recurring invoices are very different and should be used in different situations depending on the needs of your business.
Here’s a quick and easy breakdown:
- Recurring payments automatically charge the customer’s card on a pre-set schedule.
- Recurring invoices automatically send an invoice to your customer on a pre-set schedule. While a standard invoice requires action, Stax allows you to set up auto-pay invoices, where the invoice is sent for transparency, but the payment is pulled automatically on the due date.
Some businesses are a perfect fit for recurring payments, others for recurring invoices, and some for both. Many modern businesses use a hybrid approach: recurring payments for “base” subscriptions and recurring invoices for “add-on” services or variable expenses. Take a look at the following examples and see if your business fits the bill.
Recurring payments
Recurring payments are a good fit for any company that requires a fixed payment on a regular basis.
- A company that offers a product for a monthly subscription and requires upfront payment. Great examples of this can be seen in the popular ecommerce subscription businesses like the meal prep kits or streaming services. Recurring payments help subscription model companies immensely with subscription management.
- A marketing agency that supplies a fixed set of projects. For example, if you supply a client with 20 social media posts and a newsletter every month, it’s safe and efficient to set up billing on an automatic schedule.
- As-a-service business models in general are a perfect fit for recurring payments. SaaS companies are an obvious example. But there are many B2C versions of service providers. For instance, gym memberships could be considered an as-a-service business.
Recurring invoices
Recurring invoices are a good fit for companies whose recurring charges may change slightly from month to month or generally use a usage-based billing method. While invoices work for variable hours, modern SaaS uses automated usage-based billing to pull payments based on real-time consumption data.
- A law firm can use recurring payments for a monthly retainer and only send a separate invoice for overage hours, ensuring baseline cash flow is always guaranteed.
- A company that is a provider of a variety of monthly services at a fixed price can use recurring invoicing, like monthly landscape maintenance or IT support.
Depending on your situation, recurring payments and recurring invoices could be a good fit for your business. Setting up recurring payments ensures that your customer won’t have to remember to make a payment and can avoid late fees. Meanwhile sending recurring invoices helps you to minimize any duplicate work. Ultimately, both help you save time, allowing you to shift your attention to other areas of your business that require your attention.
Here’s a quick breakdown of the features of recurring payments and recurring invoices.
| Feature | Recurring payments (auto-pay) | Recurring invoices (manual pay) |
| Control | Merchant initiates the pull | Customer initiates the push |
| Best for | Fixed subscriptions, memberships | Professional services, variable hours |
| Friction | Low (set and forget) | High (requires customer action) |
| Cash flow | High predictability | Medium predictability |
If you haven’t already incorporated these types of payments to your flow, consider the following benefits and see if this is the right fit for you.
Benefits of recurring billing systems
Recurring billing systems—both invoicing and payments—provide benefits to both your business and your customer. These benefits can even improve customer retention. If your business hasn’t yet implemented a billing process like this, take a look at these.
Speed up payments
The less time you spend chasing down payment, the faster you can get paid. Relying on automation to send out payment reminders, or simply initiate the transaction, means money in your pocket faster. Most consumers pay their regular bills (like utility bills) on a monthly billing cycle. When you become a part of that cadence—particularly when you’re taking automatic payments—you reduce the risk of the customer forgetting to pay you.
Improve cash flow
Cash flow is important to any business. Having a constant flow of funds to support other areas of the business is vital to success. By setting up recurring payments or invoices, you can ensure that payment is deposited in your account on a monthly basis, reducing the risk of being stuck without the cash you need. Recurring payments improve cash flow predictability, but only when paired with automated dunning management to handle declines and expired cards.
Save time and money
Automation is a wonderful thing for business owners, especially when it comes to something as important as payments. By using the Stax virtual terminal’s functionality to send out your invoices or initiate your transactions, you can spend more time on what matters most to you. By using recurring schedules, you utilize securely vaulted tokens, which means your staff never sees or touches raw card data, significantly reducing your PCI scope and liability.
Enhance customer relationships
Recurring billing models can truly enhance your customer relationships and reduce customer churn by completely streamlining the payment process. If you’re automatically charging their payment method or bank account, in particular, you completely remove the friction of paying. Customers can focus simply on the services they get from you, rather than thinking about the price tag.
How to implement a recurring billing model
You’ll set up the various types of recurring billing within your billing solution. With Stax, your billing and gateway are unified. You manage the schedule, tokenization, and processing within a single, PCI-compliant ecosystem.
Setting up recurring payments and recurring invoices with Stax is simple. Stax enables you to manage the entire subscription lifecycle, including trial periods, mid-month upgrades (pro-rating), and automated renewal notifications. Learn more about how our virtual terminal can help your business grow.
Quick FAQs about recurring payments vs. recurring invoices
Q: What is the difference between recurring payments and recurring invoices?
Recurring payments automatically charge the customer’s card on a pre-set schedule, ensuring a fixed payment is collected regularly. On the other hand, recurring invoices automatically send an invoice to the customer on a pre-set schedule but do not collect payment until the customer takes action.
Q: Can you give examples of businesses that are a good fit for recurring payments?
Companies that require a fixed payment on a regular schedule are suitable for recurring payments. Examples include subscription-based ecommerce businesses, streaming services, marketing agencies supplying a fixed set of projects, and as-a-service business models like SaaS companies and gym memberships.
Q: When are recurring invoices more beneficial than recurring payments?
Recurring invoices are ideal for companies whose recurring charges may fluctuate each month or who use a usage-based billing method. Examples include consulting or law firms that offer services with billable hours, or companies that provide a variety of monthly services at a fixed price, such as monthly landscape maintenance or IT support.
Q: What are the benefits of implementing a recurring billing system?
Recurring billing systems can speed up payments, improve cash flow, save time and money, and enhance customer relationships by streamlining the payment process. They can also reduce the risk of the customer forgetting to pay and improve customer retention.
Q: How can I implement a recurring billing model in my business?
Recurring billing can be set up within your billing solution, with your payment gateway making it easy for customers to enter their payment details. For example, Stax allows you to set up recurring payments and invoices simply by setting the schedule for automation when creating an invoice.
Q: What is the role of automation in recurring billing systems?
Automation plays a crucial role in recurring billing systems. It not only ensures that payments are collected or invoices are sent out on time, but it also reduces the risk of errors like forgetting to send an invoice or entering incorrect customer payment information. Automation can also save business owners time and money by reducing the need for manual intervention in the billing process.
Q: Can recurring billing systems improve customer relationships?
Yes, recurring billing models can enhance customer relationships by streamlining the payment process, thereby reducing friction and allowing customers to focus on the services they receive rather than the payment process. This can also lead to improved customer retention.
