All about recurring invoices

Recurring invoices have become very popular in modern business times because they can automatically charge customers at regular intervals.

Meaning of recurring invoices

A recurring invoice is sent to the customer at regular time intervals. They are normally sent every month. Under this invoicing method, the supplier first gets permission from the customer to regularly charge a regular amount until an agreed date for the ongoing service agreement. This method of invoicing is common with online software businesses, cable companies, gym or magazine subscriptions.

Benefits of raising recurring invoices

Recurring invoices are very convenient as the supplier is not required to wait for the customer or ask for payment details. Also, the customer is not required to send manual payments repeatedly. Some of the other benefits of raising recurring invoices are:

• Improved cash flow- They assure steady monthly income, enabling the business to meet monthly expenses and other costs. 
• Automates the payment process- A business can create an invoice once, link the customer’s credit card details to the same and set a schedule for sending invoices on time. This reduces duplication of work and will also ensure peace of mind regarding prompt payments.
• Improved customer relations help build recurring relationships, and the customers will look to you as their extended team instead of an ad-hoc vendor.

Drawbacks of raising recurring invoices

In this invoicing method, it is harder to trace errors as a standard invoice template is already set and sent to the customers regularly. But, under normal invoicing, the supplier sends an invoice to the customer, and if there is any error, the customer will send it back for resubmission. Thus, the error gets resolved immediately.

Under, recurring invoicing both identification and correction of errors is difficult.

Format, templates and contents of recurring invoices

Below are some of the templates of recurring invoices:

Contents of a recurring invoice

A recurring invoice shall contain all the details as required for a normal invoice. For more information about the contents, refer to our article on the tax invoice.
 

How does recurring invoicing work?

The workflow of a recurring invoice is as follows:

• Choose a customised template for sending recurring invoices. 
• Update the invoice details in the template.
• Set the time interval for sending a recurring invoice.
• After sending one invoice, the next one will automatically be sent after a set period. 
• Record the customer credit card details or any convenient mode for receiving payments.
• One can stop sending the invoice after the agreed period.

How to find out if recurring invoices are suitable for your business?

Using a recurring invoicing system depends upon the nature of your business. Below are examples of companies using recurring invoicing systems. 

• It is suitable for businesses providing maintenance services. For example, software companies provide monthly support services to their customers.   
• Companies provide online resources and training material for a fixed period. For example, LinkedIn Learning.
• Companies that provide monthly service packages.
• Software providers charge monthly license fees.
• Businesses with subscription-based models.

After going through the above examples, you can decide whether it is suitable for their business requirements.
 

How to set up an ideal recurring billing system for your organisation?

An ideal recurring billing system provides:

• Flexibility- It should be adaptable to your business workflows and changing business needs. It should be able to support your add on business plans.
• Saves time by improving efficiency- One-time updating of invoicing details in a standard format for future use and setting a schedule for regular payments saves a lot of time and improves efficiency.
• Simplification of the entire invoicing process- It should capture all the required details for invoicing with its robust technology and automation. Thereby, it simplifies the whole invoicing process.