Recurring Credit Card Processing Payments vs Recurring Invoices

Getting paid on an ongoing basis from the same customer is a dream for businesses across all industries—especially when you can put those payments on autopilot. Recurring credit card processing payments, whether it’s monthly, quarterly, bi-annually, or annually, have that steady revenue that can help your company scale.

However, not all recurring revenue is the same. At first glance, the terms “recurring credit card processing payments” and “recurring invoices” might appear interchangeable—but they’re very different.

As a business owner, CFO, or financial decision-maker, it’s essential to understand these differences. There are times when recurring payments are more appropriate than recurring invoices and vice versa.

Some businesses and industries are the perfect matches for one or the other, while some companies are a good fit for a combination of the two.

We created this guide to clear the confusion surrounding recurring payments and recurring invoices. Below you’ll learn about the differences, benefits, examples and see which option is best for your business. Let’s dive in.

Recurring Payments vs. Recurring Invoices: Definitions, Differences, and Examples

Before we continue, let’s make sure we’re all on the same page. Here’s the difference between recurring payments and recurring invoices:

• Recurring Credit Card Processing Payments — These transactions are automatically charged to a credit card on a predetermined schedule. Schedules are typically once per month, once per quarter, or once per year. In some cases, there could be scenarios where recurring payments happen on an odd schedule, like bi-annually or once every two years. But this largely depends on the business or service offered. 

• Recurring Invoices — Recurring invoices also leverage automation. But they don’t automatically generate a payment. This method automatically sends invoices to customers on a predetermined schedule. Unlike recurring payments, no transaction occurs until the customer takes action to pay.

The business type, product, service, or industry all impact whether or not you should be using recurring payments or recurring invoices. 

Examples of Recurring Payments and Recurring Invoices

SaaS businesses or digital subscriptions would be a good fit for recurring payments. 

I’m sure most of you have subscriptions in your personal life that get charged to your card on a regular basis. Spotify is a simple real-life example to help you understand recurring payments.

Users pick a subscription, enter their credit card information, and automatically get charged for the service. It wouldn’t make sense for Spotify to send out invoices to customers on a monthly basis and then wait for them to pay. The logistics are too complicated.

Recurring invoices are a bit different. This payment collection method is often used by consulting services, law firms, landscapers, and any business offering an ongoing service at a pre-set price.

Rather than manually generating the same invoice every month, you can set up a recurring invoice and have it sent directly to your clients. You’ll still need to wait for them to issue payment, but it saves some time and labor associated with administrative accounting tasks. 

Most modern accounting software has a feature that supports recurring invoices. 

Usually, it’s just a matter of generating an invoice once, then enabling a box or slider to “set as recurring” or something like that. Then you’ll have the option to set a schedule from there.

Here’s an example of what that looks like from Zoho Books:

You’ll likely have a similar function on the accounting software you’re already using. So you probably won’t have to switch or get something new to set this up.

Benefits of Recurring Payments and Recurring Invoices

Both recurring invoices each have their fair share of advantages. In some scenarios, one has the edge over the other. We’ll take a closer look at these benefits below:

• Improved Cash Flow — Recurring payments and recurring invoices allow you to generate cash on a regular basis. With recurring payments, it’s also easier to predict your cash flow based on sign-ups and active subscriptions. Even when new business is slow or stagnant, you can rely on the recurring cash flow from these payments.

• Faster Payment Cycles — Both options make it easier for you to get paid. You won’t have to chase down payments, and it lowers your average collection times. Even though you aren’t getting paid automatically with recurring invoices, you can set up automatic payment reminders to speed up this process. For example, if an invoice is unpaid after two weeks, a reminder notice will automatically get sent. 

• Cost Savings and More Free Time — Putting your payment collection and invoicing on autopilot will save you a ton of money. It may not seem like much if you’re a startup or small business, but the costs associated with accounting tasks can add up quickly at scale. If you’re a sole proprietor or run a small operation, this can free up your time to spend on other areas growing your business.

• Improved Customer Relationships — Recurring payments and recurring invoices help you establish a long-term relationship with your clients. For B2B services, it makes your organization feel like an extension of your client’s operation as opposed to a one-time vendor. You’ll also have the opportunity to offer discounts for things like an annual subscription vs. a month-to-month subscription.

Drawbacks of Recurring Payments and Recurring Invoices

Recurring credit card processing payments and recurring invoices sometimes come with some challenges or difficulties. Here are a handful of drawbacks to consider as well:

• Incorrect billing can require extra time and labor to fix the problem

• Customers may not pay invoices until mistakes are fixed

• Recurring payments can be mistakenly disputed or reported as a scam by customers if they don’t recognize the charge on their credit card statements

• Lots of scam reports or chargebacks can lead to high fees and potentially hurt your ability to process credit cards in the future

Final Thoughts

Recurring credit card processing payments and recurring invoices are not the same. Each has its pros and cons, and both are good fits in certain situations.

Based on the information in this guide, hopefully, you’ve been able to decide which one works best for your business. 

Whether you’re using recurring credit card processing payments, recurring invoices, or a combination of the two, I’m sure you’ll be accepting credit card payments.

To help keep those credit card processing fees as low as possible, reach out to our team at Merchant Cost Consulting to find out if you’re overpaying. We’ll negotiate those fees on your behalf so you can save money without switching processors.