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Recurring billing (or recurring payments) is a process when a merchant charges a customer’s account at regular time intervals for purchases of goods and services. There are several important concepts you should keep in mind to understand recurring billing properly.
First, we should address the difference between committed and uncommitted recurring billing models. Uncommitted recurring billing does not involve any minimum number of required payments, while under committed billing a customer is required to do a specific number of payments. Under committed billing, if a payment is missed, and account becomes delinquent, the creditor (a subscription-based business using recurring billing system) generally attempts to collect any past dues.
Second, speaking of subscription-based businesses, that use recurring billing as their business model, we should mention different payment plan types. The three recurring billing schedule (or payment plan) types are:
• fixed plan (when a limited number of payments are charged at regular time intervals),
• unlimited plan (when the number of payments is unlimited, and they recur until being cancelled by the customer),
• hybrid plan (when after a certain period of time a fixed plan becomes an unlimited one).
Third, there are two different concepts generally referred to as recurring billing and repeat billing. Under repeat billing no outstanding balances and past dues are accumulated, while under recurring billing the amounts owed by the customer are accumulated and stored in order to facilitate further collections attempts. An online dating web-site subscription is a typical example of repeat billing, while a typical example of recurring billing is a two-year-commitment on a cell phone plan. Consequently, the second approach is more complex in terms of recurring payment processing.
You can find more information on the subject in the series of articles on Recurring Billing on this blog.
