Recurring billing

How it works

Customers authenticate the first charge the way they would any other purchase, and that is the one doing the heavy lifting: the processor stores a token against their record together with your mandate to bill again. After that a plan holds the amount, the interval and the next billing date. On that date the processor submits a merchant-initiated transaction flagged as recurring, telling the issuing bank no cardholder is present. Success or failure comes back by webhook.

Every renewal prices as a card-not-present sale. On flat-rate pricing that costs what any other online charge costs, and the fixed per-transaction fee lands hardest on cheap plans. Billing software usually sits on top of that, commonly at a small percentage of recurring revenue. High-ticket and B2B subscriptions push customers towards ACH or SEPA Direct Debit for that reason: the fee is flat and does not grow with the invoice.

Cards expire and get reissued, so a share of your renewals fails every month for reasons that have nothing to do with the customer wanting to leave. Account updaters and dunning belong in the setup, not on a list of optional extras. The other cost is easy to miss, and it is the billing descriptor. A vague one turns a forgotten subscription into a chargeback, so put a recognisable trading name and a support number on the statement line.

Worked example

3.51%. That is the effective rate when 500 subscribers pay $49 a month, or $24,500 of volume, on pricing of 2.9% + $0.30: $710.50 in percentage fees, $150 in per-transaction fees, $860.50 in total. Those 500 fixed fees are about a sixth of the bill, which is the argument for annual plans. Bill the same 500 people $588 once a year and the fixed fees come to $150, not $1,800.

Frequently asked questions

Do customers have to approve every recurring payment?

Only the first one. That charge is cardholder-initiated, may trigger a 3D Secure prompt, and is where the customer agrees to be billed again; in Europe it is also what keeps later charges outside Strong Customer Authentication. Renewals run as merchant-initiated transactions against the stored token, with no prompt and nothing for the customer to do, so your cancellation route has to be easy to find.

Is recurring billing the same as a subscription management platform?

They get sold together, which is where the confusion starts, but recurring billing is only the charging mechanism. A subscription platform is the logic around it: plans, upgrades, proration, trials, coupons, invoices, tax, dunning. Some processors bundle both and some sell the second as a paid module, so when you compare quotes, check which side of that line each price covers.

Is ACH cheaper than cards for subscriptions?

Once the ticket is large, yes. ACH usually costs a small flat fee rather than a percentage, so a $500 monthly invoice can cost a few dollars instead of roughly fifteen. What you trade is timing and certainty: funds take a few business days to clear, and a returned debit can land days after you thought the payment was good, sometimes after you have delivered the service.