Comprehensive Guide on Recurring Invoice and How to Set It Up

Recurring invoice scheduling has become quite common in the modern industry due to its functionality to charge clients at fixed intervals regularly.

They have simplified the billing and payment procedures in organizations of all sizes.

Recurring invoices, payments, and billing are frequently confused. As the three of these terms differ significantly from one another. You can design your invoice following your brand’s rules and deliver it elegantly packaged in consumable formats with the aid of recurring invoices.

This post here will briefly introduce recurring invoices and explain how to use them in your business.

So, let’s get into it straight!

What are Recurring Invoices?

Recurring invoices enable a business to routinely bill a customer’s credit card for products or services. It acquires a one-time authorization from the cardholder to continuously charge the registered credit card until the cardholder withdraws approval.

Benefits of using recurring invoices

Modern firms frequently use recurring invoices because they want to automatically bill clients for agreed-upon goods and services. They are particularly beneficial for small businesses with monthly billing cycles or those charging recurring fees.

Furthermore, to implement recurring invoicing, a company must first obtain the customer’s consent to charge them regularly for a consistent amount. The charges will carry on until a mutually agreed-upon termination date or when the consumer withdraws consent.

While recurring invoices offer numerous advantages for businesses, it’s equally important to consider their potential drawbacks to make an informed decision.

Pros and Cons of Recurring Invoice

The process of setting up recurring invoicing has benefits and drawbacks. Before producing them for your clients, assessing the advantages against the disadvantages is worthwhile.

Pros

1. Less human error: You lower the chance of human error by automating the invoice process for clients. You no longer have to stress about forgetting to charge your consumers for the things bought. 

2. Develops cash flow: A consistent flow of monthly income is facilitated via recurring invoicing. This makes sure you have enough to pay your bills and run your business.

3. Automatic payment processes: All you need to do is produce an invoice from a template utilizing an efficient software, fix the due date, connect to your client’s credit card, and make the necessary modifications. 

You can then be at ease knowing the invoice will be sent out on time for fast, automatic transactions. You no longer need to perform redundant tasks.

4. Better relationship with customers: Your client will probably view you as a permanent member of their team rather than an “ad hoc” provider. This ongoing connection is the foundation for developing “anchor clients.” 

Customers are more likely to agree to regular payments for goods when you give them the choice of recurring payments.

5. Save time and avoid other unanticipated expenses: Even though it seems like only a few minutes, they pile up: Each invoice must be created, tracked, and processed, which requires time and money. It means more manual work will be required. By adopting a recurring invoice system, you can eliminate these unnecessary expenses. You can also choose to use a template of invoices to make the invoicing task easier.

Cons

1. Transaction failure: If a transaction fails, dealing with recurring invoices can be challenging.

2. Incorrect pricing: It would help if you exercise caution while issuing recurring invoices to avoid incorrect pricing. This also applies to price adjustments that might occur soon after creating the invoice.

3. Price adjustments: Making sure that prices have not altered prior to issuing the early bills is another drawback of issuing recurring invoices. 

This might occur if there is a price adjustment that has been permitted by contract; therefore, make sure to examine any applicable contracts before sending out the invoices.

Who Should Use Recurring Invoices?

Any business that provides the same type of invoices to its customers regularly for a service or product should consider implementing recurring invoices. Some of the businesses that issue recurring invoices to their clients include:

• Marketing companies
• Rental companies (flats, buildings, and offices)
• Subscription-based services (SaaS, graphic design, and creative tools)
• Consultants

Setting Up Recurring Invoices with Step-by-Step Guide

Understanding the recurring invoice meaning is crucial for businesses that regularly bill clients for the same products or services. As a freelancer or small business owner, you can plan and ensure on-time payment with recurring billing.

Here is how you can set up recurring invoices and plan your cash flow far in advance.

A recurring invoice has the following workflow:

• Step 1 – Pick a custom template: Make sure to select a custom template of your liking with a professional outlook and custom design for your invoice sheet.
• Step 2 – Update the payment details: Add the required payment details to the template like the total amount, due date, and accepted payment methods, and make sure to double-check the accuracy to avoid delays.
• Step 3 – Set the invoice frequency: Decide the rate at which invoices must be sent like weekly, monthly, or yearly, and set this frequency in your system to match your agreement with the client
• Step 4 – Automated invoice generation: Once the frequency is set up, the system will automatically generate and send the next invoice after the interval which decreases manual work and ensures timely billing.
• Step 5 – Record payment information: Safely store the customer’s bank account information or payment details which makes it easier for clients to pay on time.
• Step 6 – Remove the recurring invoices: Once the approved service period ends or the customer decides to cancel the subscription, stop the recurring invoices and make sure to properly communicate before stopping the process.

Difference Between Recurring Payment and Invoice

Here’s the difference between recurring payments and recurring invoices for a more ideal comparison:

Aspect	Recurring Payments	Recurring Invoices
Payment process	Automatic payment charged at pre-defined intervals	Manual payment is charged once the client receives an invoice
Ideal for	Businesses charging upfront for fixed deliverables or subscriptions	Businesses charging hourly or providing constant service fees
Payment method	Recurring payments need saved payment information like credit card or bank details.	Recurring invoices can be paid through many methods, such as credit cards, checks, and ACh transfers.
Frequency	Fixed schedule, for example, weekly, monthly, and annually.	As required based on finished work or approved milestones.
Compliance	Must align with U.S. laws like NACHA for ACH payments and card network rules.	Must align with the U.S. invoicing standards, like detailed payment terms & conditions.

Simplify your Recurring Invoicing Process

As a business owners, all of your workflows should be compatible with your billing system. It must be scalable to your constantly changing business demands, enabling you to support numerous plans, add-ons, and coupons without always requiring manual involvement.

To learn how to set up recurring payments for customers, businesses can use secure payment platforms with the help of InvoiceOwl.

The invoicing software helps you create estimates and invoices with a professional appearance in just a few minutes! It is a paid, user-friendly, mobile estimating and invoicing program. You can make expert estimates that awe prospective customers. From the mobile app, create and send estimates to clients immediately.

Get a free trial today to test it out for yourself.