Alternate name: Automated bill pay
Credit card balances are an example of a bill that requires monthly payments. For example, you can set up recurring billing for a credit card payment of $100 that would be deducted from your checking account on a specified date. Your credit card issuer would automatically process the payment without any additional information or authorization from you. The number of payments you’d need to pay off your balance depends on the balance, interest rate, and whether you have additional charges or fees on your account.
How Recurring Billing Works
Recurring billing can streamline the payment process for both businesses and consumers, allowing consumers to automatically pay for goods and services on a predetermined schedule such as daily, weekly, monthly, or annually. A recurring billing agreement can be set up directly with a business online, over the phone, or in person with a payment form. To set up a recurring billing agreement, you’ll provide the business with your payment information, then select a payment amount and a payment interval if the option is available. Depending on the service, the agreement could end on a specific date or after a specific number of payments, or it could continue indefinitely as long as you’re a customer. Once the agreement is in place, the business can process the payment as agreed without any additional information from you. A gym membership is another example of a service that would benefit from recurring billing. You may provide your bank details to cover your regular monthly subscription payment until your contract ends, if one applies, or until you cancel your membership. Consumers using checking accounts and debit cards for recurring billing are protected by the Electronic Funds Transfer Act, which is enforced through Regulation E. Under the law, businesses are required to get permission before authorizing an automatic payment. You should also receive a copy of the agreement along with instructions for cancelling the agreement. While authorization isn’t a legal requirement for recurring credit card transactions, businesses may opt to get it anyway in case there’s a dispute. Credit card processing networks do require businesses that offer free trials with recurring subscriptions to get consumer authorization before enrollment. Businesses must also notify consumers when billing is about to start, as well as provide them with clear information about how to cancel any subsequent transactions.
Pros and Cons of Recurring Billing
Pros Explained
On-time payments: Payments are automatically processed on the specified date, which eliminates late fees and other late-payment consequences.Saves time on bill paying: You can eliminate the time spent mailing a payment or paying bills online.
Cons Explained
Errors can easily be missed: If you’re charged incorrectly, you’ll have to find the error and work with your biller to have it corrected.Cancellation could be time-consuming: You may have to make a phone call or send a letter to cancel the recurring billing.
Alternatives to Recurring Billing
If you don’t want to set up recurring billing directly with a business, there are other options.
Bank Online Bill Pay
Many banks and even prepaid debit cards offer automatic bill pay, allowing you to manage more of your bills in one place. Rather than enroll in recurring billing directly with a business, you can create a recurring bill payment through your bank by providing the company, amount, and due date.
Prepaid Gift Card
You can purchase a gift card to cover the subscription cost for many music and video streaming services. Once you load the gift card to your account, the business uses the card balance rather than charging your bank account or credit card.
