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Subscription Billing vs. Recurring Payments: Choosing The Right One For Your Small Business.

Subscription Billing vs. Recurring Payments - Which is Better?
  • March 1, 2021
Subscription Billing vs. Recurring Payments - Which is Better?

The expansion and digitization of eCommerce and SaaS business models are the two main factors driving the rapid developments in the online billing systems field. However, we have cutting-edge technologies to thank for enabling online billing systems, including subscription billing and recurring payments.

Many people use these terms interchangeably. The truth is quite the opposite: they refer to two different concepts when it comes to the billing systems.

The real question here is how do you choose the right one. Some customers prefer one over the other. The same applies to businesses. This article will tackle everything related to the subscription billing vs. recurring payments topic to help you make an informed decision.

As a Small Business Owner, you will need an efficient cash in-flow system to stay in business. Let VatPay help you automate your recurring payments.

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Recurring Payments

The recurring payment system is quite simple. Under the hood, it is an automated payment system that enables customers to set up the payment for the first time and then enjoy the service. It requires customers to disclose their personal information and payment information.

As soon as the customer submits the information, the recurring payment system will transfer the funds from theirs to your account and continue to do so after every payment cycle ends. As you can see, this type of system removes the delays from the payment process and makes it more convenient for both you and your customers.

Variable and Fixed Recurring Payments

Furthermore, recurring payments can be divided into two categories based on whether the amount is always the same or variable. These are so-called variable and fixed recurring payments.

The fixed recurring payment system is a perfect fit for services that have a fixed price. For instance, a gym membership is a fixed recurring payment as well as a magazine subscription. The bottom line - the customer always pays the same amount for the same payment cycle.

The variable recurring payment system, on the other hand, is excellent for charging usage-based services as the bill at the end of the payment cycle varies. Some internet and a majority of utility service providers use this system.

Benefits of Recurring Payments

We’ve already mentioned that recurring payments completely remove delays from the payment process, thus saving precious time for customers and businesses. But there is more to it. Here are some other benefits of recurring payments.

  • Better Security
  • Accurate Revenue Projection
  • Great Implementation Potential
  • Attract More Customers
  • Cut Down Expenses

Better Security

Payment gateways used for recurring payment processing have several layers of protection against cybersecurity threats. Thanks to tokens and PCI compliance , both your and the customers’ data will remain safe.

Accurate Revenue Projection

Once you implement a recurring payment system, you will be able to stay on top of your finances. With one glance at the reports, you will be able to tell precisely how much revenue you will generate every billing cycle.

Great Implementation Potential

The recurring payment system is not only reserved for SaaS companies. It appears that it resonates with the consumers making it a viable option for businesses across verticals such as retailers, law firms, spa centers, cosmetic shops, etc.

Attract More Customers

The recurring payment does leave room for discounts to help businesses attract more customers. There are plenty of options to do it. If you lack the inspiration, just take a look at your competitors. For instance, some companies offer a discount for first-time customers or a life-time discount on recurring payments after a year.

Cut Down Expenses

Once a company implements a recurring payment system, there is no need to waste money on paper purchasing and transportation. The bookkeeping department will focus on more pressing matters as the billing process becomes wholly automated and digitized.

Subscription Billing

Subscription billing is as popular a payment system as the recurring one. It is perfect for companies that offer different services with plenty of unique features and benefits, such as IT service providers. Instead of offering an entire bundle of services via a recurring payment plan, a company can divide its services into several programs or plans.

As you can see, it does resemble a recurring payment system but adds more flexibility to customers and businesses. Some experts even say that recurring billing is the most simple form of subscription billing. Companies can offer trial periods, penetrate markets with more affordable subscription plans, and enable customers to upgrade or downgrade their subscriptions easily.

The subscription billing process is straightforward to understand. The most important information includes:

  • Subscription start date - the date of the first subscription billing
  • Duration - the lengths of a billing cycle (month, 3, 6, 12 months)
  • Amount - a billing cycle charge for the service
  • Payment frequency - how often customers have to pay

Automated but in a Different Way

Subscription billing is also an automated payment processing system. However, unlike a recurring payment system that stores customers’ payment info, a subscription offers more flexibility. This is something your customers, especially those in the B2B sector, may find more valuable.

For instance, subscription billing enables you to send invoices to customers regularly so they can pay on their own at the start of every billing cycle. Furthermore, with access to the right software such as VatPay Subscription Billing tool, you can have different customers and different billing cycles and completely automate payments for all of them.

And finally, subscription enables all sorts of time-based automation. The trial period is a great example. Subscription billing allows companies to offer a time-based free trial and automatically inform the customer once the trial expires and offer them a quick and convenient way to subscribe.

VatPay comes with a wealth of functionalities. From Subscription Management to Project Management.

Benefits of Subscriptions

Subscription billing is quite attractive to companies both inside and outside of the IT vertical. The reason behind it is the benefits it brings to the table. Let’s quickly run through the most noteworthy ones.

  • Easily Overcome High Price Barrier
  • Free Trial as Proof of Concept
  • Reduce Customer Churn
  • Generate New Revenue Streams

Easily Overcome High Price Barrier

Subscription billing allows you to place certain price thresholds. Instead of offering all your services at a high price, you can break them down into programs. It can help companies easily overcome high price barriers and attract more customers.

Free Trial as Proof of Concept

Subscription billing doesn’t have to necessarily start precisely when a customer starts using the services. Companies can offer customers free trials for a limited time during which they can experience the services and decide whether they want to invest in them or not.

Reduce Customer Churn

Markets are volatile and uncertain. Some businesses may need to downscale their operations. On the other hand, some companies may succeed. In that situation, they will need to gain access to better services. In either case, if you have one fixed price for your service, you risk losing customers. With subscriptions, you will have multiple plans enabling customers to downgrade or upgrade on the go as they see fit.

Generate New Revenue Streams

Marketing additional and complementary services to customers is a hard job when you are using recurring payments - you are not constantly in touch with them. On the other hand, subscriptions will help you keep customers in the loop and leverage the strength of your relationship to generate new revenue streams via cross- and up-selling offers.

Final Verdict

When it comes to answering the question of subscription billing vs. recurring payment - which is better, there is no definitive answer. As you can see, both payment processes are very similar. They even share some of the benefits.

However, when it comes to flexibility and offering more to customers, subscription billing is ahead of recurring payments. It all boils down to your unique business needs, expectations of your target customers, and the capabilities of your billing software.