What Is Recurring Billing?

Introduction

From streaming services to gym memberships, many of the things we use daily are paid for as recurring charges.

This type of billing is convenient, although the charges can quietly add up if you aren’t keeping track. But if you understand how recurring charges work, it can help you control costs and avoid surprises.

How Recurring Charges Work

Recurring billing is when a business automatically charges a customer on a set schedule. You agree once, and the charge repeats on a regular basis, typically monthly or annually, until canceled.

Instead of manually logging in every month to pay a bill, your payment method is securely stored and charged automatically. It’s a win-win arrangement: The business gets predictable income and you have one less thing to remember.

You may already be using recurring billing to pay for streaming services like Netflix or Spotify, gym memberships, software subscriptions such as Microsoft 365, and delivery services like meal kits or pet food subscriptions.

Common Recurring Billing Models

Not all recurring charges work the same. Several billing models are used, depending on the type of product or service.

• Fixed subscriptions: You pay a set amount every billing cycle, regardless of the amount of service you use. Most streaming platforms follow this model.

• Usage-based billing: Also known as pay-as-you-go, this model charges you based on the amount you consume. Some phone data plans work this way.

• Tiered plans: These offer different levels of service at various price points. A fitness app might provide a basic workout plan, along with a premium plan that includes personal coaching.

Recurring Payments: Benefits for Consumers and Businesses

Both businesses and customers like recurring billing for different reasons.

For customers, it brings convenience. You don’t have to log in and pay a bill every month. Once the billing details are set up, the payments happen in the background. That consistency can help with budgeting, since you know when you’ll be charged and for how much.

Recurring payments can also help you avoid things like late fees or having a service canceled.

Let’s say your cell phone service is a monthly recurring charge on a credit card. And let’s also say that credit card is set up for AutoPay, so the statement balance is automatically withdrawn from your bank account every month.

First, you don’t have to worry about forgetting to pay your phone bill, since the charge will hit your card automatically. And since you’ve set up AutoPay on that credit card, your credit card will also be paid automatically. Both of these are examples of recurring billing and both show us how recurring billing can mean fewer things to keep track of.

For businesses, recurring billing ensures predictable revenue, streamlines payment processing and can reduce late payments. That frees up time, money and resources which can be invested back into making the service even better.

Risks and Downsides of Recurring Billing

While recurring billing has benefits, it comes with risks, including forgotten charges.

For example, some services charge annually, so you may forget until an automatic renewal posts in a year.

Or you might sign up for a free trial and forget to cancel before the trial period ends, so you are automatically charged.

Maybe you signed up for a subscription at an introductory rate, and it automatically renews at the higher, regular rate. Or there was simply a rate hike at some point.

Losing track of recurring charges could lead you to pay for services that you don’t use anymore, which can bring on overspending and financial stress.

If you’ve struggled to manage your recurring expenses, it may be helpful to explore additional assistance, such as credit counseling. Support like this can offer guidance in organizing your finances and staying on top of monthly commitments.

How To Manage and Monitor Recurring Charges

Staying in control of recurring payments starts with awareness. Every month, try to take time to review your statements and pay attention to memberships, subscriptions and other automatic payments.

If you spot something unfamiliar or no longer useful, cancel it immediately. The cancellation process can sometimes take a little work, so be prepared to dig through your account settings or contact customer service.

You can also use your bank or credit card’s alert system to your advantage. Many credit cards offer app or text notifications for account activity. These reminders help you stay mindful of what’s coming out of your account.

If you’re looking to understand your credit card options better, a card comparison tool can help you identify a card that matches your needs.

Tracking your recurring charges doesn’t have to be complicated. You could use a simple spreadsheet or a budgeting app to track each one, its cost, and date of billing. You can then revisit them monthly to keep organized and avoid unexpected renewals.

Once you feel confident in your tracking of recurring charges, you may even consider keeping the funds to pay for them in a high-yield savings account. These accounts offer better interest than standard savings and can be a smart place to park money set aside for monthly subscriptions or yearly renewals.

Final Thoughts

Recurring charges are a fairly routine and convenient part of modern life. They allow you to enjoy your favorite services without lifting a finger each month. But that convenience can eventually lead to financial distress if you lose track of what you pay for.

The key is to stay aware, whether you’re simply tracking a small handful of subscriptions or incorporating a thorough budgeting system.

With these simple tips, you can stay on top of your recurring charges and be confident that you’re only paying for the things you want to.