Recurring payments have grown in popularity over the past several years. From subscription boxes to health and fitness services, recurring purchases have become part of how many people shop and pay for everyday products and services.
According to Market.us, the global subscription economy market is estimated to be worth about $487 billion in 2024 and could grow to over $2 trillion by 2034. [1]Market.us. “Global Subscription Economy Market Size, Share Analysis Report By Service Type.” Accessed December 30, 2025. This popularity shouldn’t come as a surprise. Many consumers prefer seamless, set-it-and-forget experiences, and recurring payments make that possible by eliminating repeated checkout steps.
So, what exactly are recurring payments, and how do they work behind the scenes? In this guide, we’ll break down the key things you need to know.
Key Takeaways
- A recurring payment is an automated transaction on a preset schedule (weekly, monthly, or annual)
- They offer benefits like predictable cash flow for merchants, while giving customers a more convenient buying experience.
- Recurring payments are common across various industries, including consumer goods, entertainment, health and fitness, and SaaS.
- If a scheduled payment doesn’t go through, merchants can use dunning to manage the process of retrying the transaction and collecting payments without manual follow-up.
What Is a Recurring Payment?
A recurring payment is a transaction that happens automatically on a set schedule. Instead of initiating a payment every time a customer makes a purchase, the payment runs on a preset schedule (i.e., weekly, monthly, or annually) using a stored payment method until the customer modifies or cancels their subscription.
Why Recurring Payments Exist in Modern Commerce
Recurring payments make life easier for merchants and customers alike. Customers don’t have to think about repeat purchases, and businesses get predictable revenue they can plan around.
Scheduled payments remove friction for repeat transactions, so businesses can focus on delivering products and services. On the customer’s end, they can enjoy predictability with their purchases, without entering payment info every time or worrying about missed payments.
Real-World Examples Across Industries
We can see recurring payments in action in several industries, including:
- Retail (e.g., Amazon, Target Circle 360, Sephora)
- Health and Fitness (e.g., Gold’s Gym, Peloton, ClassPass, vitamins, and supplements)
- Entertainment (e.g., Netflix, Spotify, Disney+)
- Consumables (e.g., HelloFresh, Blue Apron, BarkBox)
- Charities (e.g., World Wildlife Fund, American Red Cross, UNICEF)
- SaaS (e.g., Mailchimp, HubSpot, Slack
How Recurring Payments Work
From the consumer’s side, recurring payments feel easy:
- 1. They sign up
- 2. They set a billing schedule
- 3. Their products or services show up on time, and payments happen in the background
On the merchant and payment processing side, there’s a lot more that happens behind the scenes to ensure security, accuracy, and reliability. Consider the following:
The Core Steps in a Recurring Billing Cycle
Recurring billing typically follows this predictable flow:
1. The customer authorizes the recurring payments
The process starts when the customer opts in. When they choose to subscribe or buy a recurring service, they opt in to recurring payments at checkout. They enter their payment information and agree to be charged regularly, whether that’s monthly, annually, or on another schedule.
2. The recurring payments system stores payment details on file
Instead of saving raw card data, the payment provider stores a token. This allows the merchant to keep a card on file while still making sure the data is protected.
3. Dues are charged on the agreed-upon schedule
Payments are processed automatically according to the agreed-upon schedule. No manual action from the customer or merchant is needed, unless the customer changes their subscription or payment info.
4. Ongoing subscription management
Customers can upgrade, pause, or cancel. At this stage, businesses track renewals, failures, and churn to keep revenue predictable.
5. Re-entering or updating payment details
This only happens if a payment fails. In this instance, the system may retry the charge or notify the customer to update their details.
The Technology Behind Recurring Billing
These are the technologies that power recurring billing:
Payment Gateway
The gateway sits at the core of the recurring payment system. It tokenizes payment data, securely transmits it, and processes transactions.
Recurring Billing or Subscription Management System
This is the software that facilitates the subscription. It’s where merchants set pricing plans and billing cycles.
Dunning Logic
Dunning or automated retry logic helps recover failed payments by retrying charges at set intervals and prompting customers to update expired cards.
Integrations
These play a critical role when you need to connect your subscription management to other business tools (accounting, CRM, etc.)
Types of Recurring Payments
Recurring payments come in different forms. Here are the types to consider:
Subscription-Based Payments
- This is the most straightforward type of recurring payment. The customer signs up for a product or service, and then agrees to be charged on a regular schedule (e.g., monthly or annually).
Retainer & Service-Based Recurring Billing
- Common in industries like law or PR, retainers provide clients with guaranteed, ongoing support for a flat recurring fee. Instead of tracking every minor task or project, the client pays upfront at the start of the billing cycle, ensuring the team is available and working on their behalf throughout the month.
Usage-Based or Metered Billing
- We usually see this in utilities. With user-based or metered billing, customers are billed based on how much they use. The charges are still recurring, and they happen automatically. But the actual amount will vary from one billing cycle to the next, depending on usage.
Hybrid Recurring Payment Models
- Sometimes, a single billing style doesn’t fit. Hybrid models allow for a base monthly fee with “pay-as-you-go” extras. As an example, think of a recurring cleaning service: the monthly rate covers the basics, but if you need a one-time specialty task like an oven cleaning, it’s added to that month’s bill as an à la carte charge.
Automatic vs Manual Recurring Payments
- Recurring payments are usually automated, but it’s not always the case.
- Automatic recurring payments run without customer involvement after the initial setup. The system charges the payment method on file each cycle.
- On the other hand, businesses or customers may choose to do manual recurring payments. Here, the charges still follow a schedule, but the customer must approve or initiate each payment.
Fixed vs Variable Recurring Payments
- Fixed recurring payments charge the same amount every billing cycle. We see these in set monthly subscriptions or service agreements that have consistent retainer fees.
- Variable recurring payments, on the other hand, change based on usage and reflect actual consumption. For example, utility bills fluctuate month to month based on how much electricity, water, or gas a customer actually uses.
Benefits of Recurring Payments for Businesses
From better cash flow to smoother operations, merchants can benefit a lot from offering recurring payments. Take a closer look below:
- Predictable and Stable Cash Flow
- Recurring payments can keep cash flow stable and predictable. Knowing how much revenue your business will bring in at any given month makes planning a lot easier. Not only does it reduce stress from inconsistent income, but it also gives businesses the clarity (and even confidence) to decide where to invest, when to hire, and how to grow
- Improved Customer Convenience
- It’s no secret that customers value convenience. Recurring payments give them exactly that by enabling them to “set and forget” routine purchases. They don’t have to keep re-entering their card details to pay for things they use regularly. Payments happen automatically, which gives them one less thing to worry about.
- Higher Lifetime Value & Customer Retention
- When customers pay on a recurring basis, they tend to stick around longer. It reduces friction from regular purchases, and this naturally increases lifetime value over time. The easier it is to keep using your product or service, the less likely customers are to leave.
- Lower Operational Burden
- Manually charging cards month after month takes time and resources. With recurring payments, those tasks happen automatically, so you and your team can spend less time on tedious, operational tasks.
- Faster Payments and Reduced Late Payments
- Automatic payments take the manual work out of billing. Since the process is automatic, you can reduce late payments and the need to chase down funds.
- Scalability Advantages
- When you’re not burdened by late payments and operational inefficiencies, you open up room to scale. You’re able to plan ahead and strategize with more confidence. And if you’re using a solid subscription management platform, that system can manage upgrades, downgrades, proration, retries, and renewals behind the scenes–you won’t have to deal with any of that complexity.
Potential Drawbacks and Risks
Recurring payments are beneficial for businesses and customers, but they’re not perfect. Here are a few hurdles to be aware of:
- Payment Failures and Involuntary Churn
- Issues like expired cards or low balances can cause payments to fail, leading to “involuntary churn,” which is when you lose a customer who doesn’t actually want to leave. Luckily, implementing an automatic retry system can catch most of these issues.
- Customer Confusion Around Charges
- If your billing terms are unclear or hard to find, customers might misunderstand what they’re signing up for. Confused customers are more likely to contact support or dispute charges, even if the payment itself is valid.
- Higher Compliance & Security Requirements
- Recurring payments have stricter payment security and PCI compliance standards because you have customers’ payment data in your system. Storing payment credentials (even when they’re tokenized) comes with added responsibility. As such, you should be very mindful of compliance and invest in secure systems that protect customer data.
- Refunds and Disputes Are More Sensitive
- With one-time transactions, refunds are pretty straightforward: the customer returns a product and gets their money back. Things get a little trickier with recurring payments because of issues like proration. For example, if a customer cancels a service on the 10th day of a 30-day billing cycle, questions can arise about how much to refund.
Recurring Payment Fees and Costs
As with any merchant service, recurring payments come with the same payment processing fees and costs. Here’s a rundown of what you can expect to pay:
Typical Fees
- Interchange fees
- Card network fees
- Processor markup
- Gateway fees
Additionally, you might need to pay for the subscription or the recurring billing software itself, and the cost will vary depending on your provider.
Hidden Costs to Be Aware Of
Not all fees are obvious, and if you’re not careful, certain expenses can add up. These can include:
- Failed payment fees
- Cargeback fees
- Account updater fees
How to Start Accepting Recurring Payments
Looking to accept recurring payments? Here are the steps involved in the process:
1. Choose the Right Recurring Payment Provider
The ideal payments partner will have recurring payments right out of the box. For best results, opt for a payments provider with capabilities such as automated billing, secure payment storage, flexible billing schedules, and integrations with tools you’re currently using in your business.
2. Set Up Your Billing Structure
Next up, determine when recurring payments will be collected—i.e., weekly, monthly, quarterly, or annually.
This will all depend on your business model. Do you deliver products or services every month? Do your customers’ usage or needs fluctuate from month to month? These are all factors that you need to consider.
3. Collect Customer Authorization
You cannot store payment details or automatically collect payments without your customers’ express approval. So before signing them up for recurring payments, see to it that your checkout clearly explains the billing terms and requires customers to actively agree to ongoing charges.
4. Configure Automation Rules
The next step is to configure the rules for how billing will run. Aside from collecting payments, you also need to set up automated retries after failed payments and customer notifications for expired cards. You should also determine what happens if a payment can’t be collected.
5. Integrate with Accounting and Reporting
Finally, connect your recurring payments system with your accounting and reporting tools.
Doing so keeps revenue, refunds, and fees synced. Having this set up will make it easier to reconcile your books and track business performance.
Best Practices for Managing Recurring Payments
Already have recurring payments in place? Follow these best practices to promote a smooth experience for both yourself and your customers.
Make Billing Transparent and Customer-Friendly
A lot of recurring payment headaches stem from poor customer communication. You can significantly reduce these types of issues by ensuring that your billing practices are transparent and customer-friendly. To that end, see to it that:
- Your recurring payment policies are fully visible and easy to understand
- Pricing, billing frequency, and renewal dates are clearly stated upfront
- Customers know exactly when they will be charged
- Billing management tools (pause, modify, or cancel subscriptions) are easy to access
- Billing confirmations and receipts are sent automatically
Keep Payment Information Current
You can avoid issues around failed payments by proactively keeping payment information up to date. Be sure to automate prompts and reminders for customers to update their cards. If possible, use account updater services so new cards are refreshed automatically.
Use Dunning Management to Reduce Failed Payments
Dunning management is the process of automatically following up on failed or declined payments to recover revenue that would otherwise be lost. By setting up smart, automated retry logic, you can increase the chances of successful collection without manual intervention. For example, your system can retry payments on strategic days, such as Fridays, when customers are more likely to have available funds after payday, rather than retrying immediately and triggering another decline.
Offer Multiple Payment Methods
Part of offering a convenient customer experience is giving them multiple payment methods. This can include credit and debit cards, bank transfers or ACH, and services like PayPal.
Monitor KPIs for Recurring Revenue
Keep an eye on metrics like revenue, churn rates, failed payment rates, and customer lifetime value. Having a handle on these KPIs will enable you to effectively gauge the health of your business and take action accordingly.
Start Accepting Recurring Payments with Kurv
Ready to simplify recurring billing? Kurv offers recurring payment tools that power your recurring payment needs, from setup to scale.
Kurv has tools that enable you to:
- Automate subscription and recurring billing
- Recover failed payments with smart retries
- Keep billing transparent with built-in invoicing and receipts
- Manage customers, plans, and updates in one place
- Get hands-on support from real payments experts
Everything lives in one dashboard, so you can spend less time chasing payments and more time growing your business.
Frequently Asked Questions
Are recurring payments safe?
Yes, recurring payments are safe when they’re set up properly. Modern recurring payment providers use tokenization and encryption, so merchants never store raw card numbers.
As long as the provider follows industry security standards and compliance rules, recurring payments are just as safe as one-time transactions.
What is the difference between recurring billing and subscription billing?
Recurring billing is a broader term that describes billing that happens on an automatic, regular basis. Subscription billing sits under recurring billing. Other types of recurring bills include retainers and membership services.
How long does a recurring payment authorization remain valid?
A recurring payment authorization usually stays valid until the customer cancels it or the payment method expires.
How do businesses notify customers about upcoming recurring charges?
Businesses can notify customers about upcoming payments via their preferred communication method. This is usually done via email, though channels like traditional mail and even SMS aren’t unheard of.
What is dunning, and why is it important for recurring revenue?
Dunning is the process of managing failed payments. Payment retries, automated reminders, and customer prompts all fall under dunning management. When done right, it helps merchants recover lost revenue from failed payments.
Are recurring payments the same as autopay?
They’re similar, but not the same. Recurring payments are when the customer’s payment information on file is used to charge them for subscriptions, retainers, or metered billing. Autopay is an option that a customer can select to automatically pay a bill when it’s due. Autopay can apply to recurring purchases, but it has other use cases. For example, a consumer might turn on autopay on their credit card to pay their minimum balance per month.
Can customers dispute a recurring payment?
Yes. Just like with one-time charges, customers can dispute recurring payments. This can happen when billing terms aren’t clear or when customers cancel their subscription.
How do I stop a recurring payment?
That depends on the merchant. Each business has its own processes for stopping recurring payments. With some merchants, you can cancel a membership online. Other merchants may require you to submit a form, send them an email, or cancel over the phone.
Why do recurring payments fail, and how can businesses reduce failed charges?
Recurring payments fail for a number of reasons. The most common ones are expired cards or insufficient funds. Businesses can reduce failed charges by sending update reminders or by using account updater services that update card details automatically.
What information do businesses need to legally store for recurring billing?
Businesses need proof of customer authorization, billing terms, and a record of the transactions. Payment details themselves are typically stored as secure tokens by the payment provider, not as actual card numbers.
