Recurring Billing System Organization

on May5
recurring billing system
Written by
James Davis
Written by James Davis
Senior Technical Writer at United Thinkers
Author of the Paylosophy blog, a veteran writer, and a stock analyst with extensive knowledge and experience in the financial services industry that allows me to cover the latest payment industry news, developments, and insights. Read more
recurring billing system
Reviewed by
Kathrine Pensatori
Product Specialist at United Thinkers
Product specialist with more than 10 years of experience in the Payment Processing Industry. I help payment facilitators and PSPs solve their various payment processing issues. Read more

The purpose of this article is to familiarize merchant services industry players, searching for a suitable recurring billing solution, with several conceptual approaches to recurring billing systems implementation, as well as explain advantages and disadvantages of respective solutions. Based on the insights provided in the article below, businesses can make the choice of their recurring billing partners more intelligibly.

As we mentioned in one of the previous articles, there are two basic types of payment plans: term (fixed) plan and open (unlimited, pay-as-you-go) plan. There are also hybrid plans which have a ‘term’ part with an ‘open’ end.

Depending on the predominant type of payment plans a company utilizes, respective features need to be supported by its recurring billing software.

Critical recurring billing system features

The needs of companies using recurring billing systems revolve around several key features which should be considered when a recurring billing system is implemented:

  • Payment plan setup – ability to set up payment plans with relative ease through UI or API
  • Adjustments to existing payment plans – ability to introduce changes in billing dates, implement freezes, billing deferments, cancellations, future cancellations, partial cancellations etc.
  • Revenue forecasting – ability to easily say what the revenue is going to be on a specific date in the future as of today
  • Billing history analysis – ability to analyze billing differences between two or more billing dates (weeks in case of weekly billing, or months in case of monthly billing) in the past
  • Collections process organization – availability of decline recycling and collections functionality within the recurring billing system

For every business some features have higher priority than the others.

If we were to analyze common needs of companies that rely on recurring billing, we can see certain similarities of patterns, based on which, the companies can be organized into at least three groups. The three groups of businesses depending on their needs can be defined as follows: online subscription-based businesses, businesses relying on sales force, and businesses utilizing collections (although some companies can belong to several groups at once).

Company types depending on recurring billing needs

Online subscription-based businesses

Companies of this type exclusively use open payment plans, which bill on the anniversary date of the original subscription (monthly or weekly). If there is a problem with a payment, the service gets suspended (as described in respective article) and little or no collections effort is made.

Another specific feature of purely online subscription-based companies is a limited number of payment plans (i.e. pricing options) they are offering their clients.

The billing needs of these companies are relatively modest. Setup of open payment plans is really simple. Adjustments, other than cancellation, are not common. Forecasting is also relatively simple, because the terms of billing do not change from month to month on individual plans. Analysis of billing differences is simple, because no adjustments, such as freezes or deferments are involved. Moreover, small number of payment plans to be handled further simplifies forecasting and billing history analysis.

Businesses relying on sales force

Another type of recurring billing business type is represented by companies (using term or open payment plans) that have physical dealerships and use sales force, i.e. a group of sales agents to sell their services, and, therefore, need to pay commissions to sales personnel, and analyze performance of their sales agents. Consequently, revenue forecasting and billing difference analysis are often most relevant in companies where salespeople are involved.

Particularly analysis of billing difference can yield unexpected results when salespeople report sales of a certain number of agreements, while the revenue actually drops. In such a situation one needs to be able to get insight into why this happened. The paradox might be explained by the fact that all the newly sold agreements start their billing in the future, while some of already existing payment plans were frozen or got cancelled.

Another particular feature of this category of companies is that they sometimes need to implement freezes, cancellations and other payment plan adjustments. As a result, these companies need slightly more complex logic to implement the required functionality, in comparison to purely online businesses.

Businesses utilizing collections

The next category of recurring billing companies sell mostly committed agreements and, beside potential payment plan adjustments, also need to implement collections-related functionality in their recurring billing systems.

For these companies collections logic and decline recycling mechanism implementation are particularly important, as their business depends on the ability to successfully collect past dues and retry declined transactions.

Recurring billing system organization models

From the standpoint of software architecture there are 3 common ways in which recurring billing systems can be organized.

Payment-based model

The most obvious way in which a recurring billing system can be organized uses only the notion of a payment plan. The payment plan encapsulates all the terms of the recurring payment.

All recurring billing terms are represented within a single entity traditionally referred to as payment plan (payment schedule). Generally speaking, payment-based model records only what a customer pays, but not what he or she owes.

The key advantage of the “payment plan-based” approach is its simplicity in terms of implementation and usage. The approach is most relevant when billing terms generally remain unchanged (i.e. when an open (unlimited) payment plan is implemented). In this case no complex logic around freezing or cancellation of payment plan is needed (or possible).

This model is most suitable for online subscription-based companies, as it allows to easily implement creation and cancellation of agreements. While elaborate revenue forecasting and billing difference analysis are, generally, impossible with such a system, these features usually not relevant for the abovementioned types of merchants.

Invoice-based model

The notion of a payment plan might still be present in the invoice-based system. However, all of the future payments are recorded through the use of the so-called invoices. In general, an invoice is a record that indicates a charge that either has already been paid (for some product or service), or should be paid by a customer in the future.

In contrast to payment-based model, the invoice-based model allows the company to track outstanding balance of the customer and makes it much easier to deal with situations when multiple payment plans for the same customer are active at the same time. Any past dues a customer owes are accumulated (accrued) in the form of invoices and then balanced by payments.

In an invoice-based system, any customer’s debts as well as any future billing dates and amounts are recorded by invoices.

The advantage of invoice-based approach over the payment-based one is its additional flexibility. Particularly, it is easier to implement freezes, cancellations, pre-payments, changes in invoice amounts and dates, and other adjustments.

The disadvantage of this approach is that is becomes difficult to clearly distinguish, which invoices on the account are already due and were paid, and which are still due in the future. It becomes even more significant when several payment plans are associated with the same customer (as the mechanism becomes even more complex when multiple payment plans are involved).

Invoice-based systems are suitable for those businesses, which are going to use the system for recurring billing only, and utilize a separate system to process one-time purchases. The disadvantage, still, is that the approach might complicate pre-payments or declined transaction recycling process, because the systems using it do not have the functionality for processing one-time payments.

Charge-based model

In a charge-based system both fundamental notions (payment plan and invoice) are present. However, invoices are used exclusively to track purchases already made. To represent scheduled (future) payments, a notion of charge is introduced. A charge (just like and invoice) is associated with the respective payment plans, and records the amount and the date of the charge. The payment information itself and general billing terms are recorded within the associated payment plan.

The concept of a ‘charge’ is similar to invoice concept. For each billing date a charge is created. A charge is processed (a charge converts into an invoice) on a billing date. Under charge-based approach invoices are used to define the already actualized due payments, while charges denote the payments which are due in future.

The charge-based model maintains all advantages of the invoice-based model, providing an opportunity to implement a broad spectrum of payment plan adjustments. Using charges it is easy to implement payment plan freezes and forecast revenues, because for each specific date a specific (easily retrievable) object exists in the data base. Unlike invoice based-model, there is no risk that invoices and charges will get “intermingled”, so it is easy to track how much a customer owes at the moment and how much he or she will have to pay in future.

As we can see, the main advantage of charge concept is that is clearly shows on what date what amount will be charged. In this way one has better visibility into the recurring billing aspect of his business. In charge-based systems it is also easier to analyze billing differences and forecast revenues, taking adjustments (freezes, cancellations, partial cancellations and future cancellations) into account. Consequently, even if a given customer uses several payment plans, it is rather easy to arrange them properly, because all the invoices and payment plans are clearly separated.


Depending on the complexity of a given business, its organization and needs, it should choose the most suitable recurring billing system. If the business model is a subscription-based one with limited number of payment plans, almost any billing system would work. If a business needs to handle many different payments and pricing options, as well as combine one-time purchases and recurring billing (while customers with multiple payment plans are a standard practice) the business should go for a ‘charge-based’ billing system.

Visit the UniPayGateway website if you are interested in the diagram illustrating this topic

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