Subscription-based business models are popular in many industries and have great advantages for both customers and companies. Rather than one-off payments, subscriptions use recurring payments to collect payments from their customers on an ongoing basis, for as long as the customer wants. Though recurring payments and recurring bills sound very much the same, there is a minor difference between both terms. In this article, we will dive into subscription models, recurring bills and whether your company may need a recurring bill system.
A subscription model is based on continuous payments that can be scheduled for specific periods of time, such as monthly or quarterly. Companies that offer subscription options provide an ongoing service that customers sign up to and can keep using for as long as they want. Streaming services are a very straightforward example of a subscription model, as customers subscribe to the service and pay a recurring monthly bill in order to have access to it at all times. This model often uses Direct Debit, so payments are automatically taken off the customer’s account on a specific day of the month.
There are many other industries that offer this type of model. Insurance products, for instance, can be purchased on a subscription basis where customers pay a monthly fee in exchange for ongoing coverage. This offers more flexibility for customers to modify their policies at any instance or to add on other services to their existing policy.
A recurring bill is a scheduled payment that the customer agrees to in exchange for an ongoing service. Provided that customers authorise it, merchants often set up a direct debit plan so that payments are automatically processed on a scheduled day, either monthly, quarterly, or over the period of time agreed in the contract. As the term states, this bill is recurring and requires no action from customers whatsoever until they wish to cancel the contract. Most household bills work on this kind of system.
This plan saves customers time, as they only have to introduce their bank details once and don’t have to actively initiate payments. For merchants, this plan allows them to balance their accounts receivable (AR), meaning that merchants have a better idea of how much revenue they make every month and can rely more on customer loyalty. This type of plan requires businesses to focus on customer retention, because profit is made long-term.
Depending on the industry and even on each company, bills can be fixed or variable. For streaming services, for instance, bills are often fixed, so customers know exactly how much money is taken off of their account every month. If companies want to make any changes to pricing, they will have to give notice to customers. If the pricing is fixed, companies used a simple recurring payment method.
However, payments aren’t always fixed. Think of gas or electricity companies, for instance. The amount of money you pay every month depends on how much gas or electricity you used during that period. In this case, customers sign up to a recurring bill that is still paid on a scheduled regular basis, but the prices may vary. Companies that have offer a wide range of products and whose pricing is based on usage, discounts, tax and additional charges need to set up a recurring bill system. Recurring bill systems are more complex than a fixed-amount recurring payment system.
Firstly, businesses only need a recurring bill system when they work on a subscription-based model. Businesses need to consider if their models are consumption or usage-based, how many services or add-on products they provide, the discounts and promotions they may want to offer as well as how much flexibility they want to offer their customers (e.g. you may want to offer customers different billing frequencies). Recurring bill systems allow merchants to customise their offering to suit changing business and customers’ needs, so they may be an advantageous option to consider.
Imburse enables companies to connect to the entire payment ecosystem. By connecting to the Imburse platform, companies can integrate any payment provider or technology into their IT system, in any market. This allows them to gain access to a worldwide variety of technologies that they can deploy quickly and easily through our platform.
Whether companies are looking to expand their services to other countries, offer more payment methods to their customers or, in this case, introduce a recurring bill system- Imburse enables them to do so in a much faster and more cost-efficient way. If you would like to chat to our team and learn more about how we can help our business, drop us a message below.