Accounting terms

Dictionary of all accounting terms

What is a Recurring Invoice?

A recurring invoice is a type of invoicing in which a supplier or merchant automatically charges a customer for goods or services at regular intervals.

Recurring invoices are popular in modern businesses for the ability to automatically charge customers for an agreed amount for goods and services. These invoices are normally submitted, or the charges normally applied, on a monthly basis.

In order for a company to use recurring invoicing, the company first has to get permission from the customer to be charged on a regular basis for a regular amount. The charges will continue until an agreed-upon termination date or when the customer withdraws permission.

Recurring invoicing is most popularly used with online software businesses, cable companies, cell phone bills, utilities, gym membership and magazine subscriptions.

The benefit of recurring invoices

Recurring invoicing provides the great benefit of convenience. The supplier does not have to wait for the customer to pay or to repeatedly request the customer's credit card information. Similarly, the customer does not have to repeatedly send manual payments.

For example, a magazine company can provide one year's subscription to a customer where the magazines will be delivered regularly and the customer has to perform no other actions. When the term is finished, the customer can choose to terminate or extend.

The disadvantages of recurring invoices

Recurring invoicing does present drawbacks as well. The one major disadvantage is that it will be harder to spot errors in the invoice and to have that fixed. In standard invoicing, the supplier submits an invoice to the client, and if there's any error, the client will send it back to the supplier who will then resubmit it.

With recurring invoicing, however, the charge is automatically applied. If the client notices an error, he will have to go through more steps in order to get his money back. Therefore, the recurring invoice while convenient does make it more arduous to fix invoicing errors.

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