Recurring Invoices: How to Set Them Up, With a Worked Example

A recurring invoice is an invoice your software creates for you on a schedule, such as every week, month or year, from a template you set up once. Each invoice it creates gets its own number and date, so your records stay the same as if you'd written each one by hand.

There are two ways to collect payment on recurring invoices:

• The client pays each invoice. The software emails the invoice, and the client pays it by card, bank transfer or check.
• The client's saved payment method is charged automatically. This is also called auto-pay. You need the client's permission first (see "Consent and notice" below).

Recurring invoices suit work billed the same way each period: retainers, maintenance contracts, memberships, rent and fixed installment plans. For the agreement behind a retainer, see the guide to retainer invoicing and the retainer invoice template.

Worked example: a monthly retainer from start to price change

Sample business, client and figures for illustration only.

A bookkeeping firm signs a client to a $1,200-a-month retainer. Invoices go out on the 1st of each month, due in 15 days, and the client agrees in writing to automatic card payment.

1. Prorated first invoice. The client starts on November 10. November has 30 days, and November 10–30 is 21 days. So the first invoice is $1,200 × 21 ÷ 30 = $840. The recurring profile then starts on December 1 at the full $1,200.

2. Mid-month upgrade. On January 16, the client moves to a $1,500 plan that includes payroll. January has 31 days, and January 16–31 is 16 days. The firm sends a one-time invoice for the difference: ($1,500 − $1,200) × 16 ÷ 31 = $154.84. It also updates the recurring profile to $1,500 from February 1, rather than editing invoices already sent.

3. Failed automatic payment. The February 1 charge of $1,500 is declined because the saved card has expired. The invoice stays open. The firm sends a reminder with the payment link and asks the client to update the card. The client pays on February 4, and that invoice is marked paid. Nothing else changes in the recurring profile.

4. Price increase. The retainer agreement says the firm will give 30 days' written notice of any fee change. On March 1, it emails notice that the fee becomes $1,650 from April 1, then schedules the profile change for that date.

What the example shows:

1. Prorate by days, then let the schedule take over. A partial first month, or a mid-month change, is handled with a one-off amount. The recurring profile only ever holds the regular amount.
2. Change the profile going forward and leave sent invoices alone. Each invoice is a record. Corrections go on a new invoice or a credit, not on an edited copy of an old one.
3. A failed automatic charge doesn't end the arrangement. The invoice stays open until it's paid, and the client updates their payment method. Write down in your agreement how many reminders you'll send before pausing work.
4. The notice period comes from your agreement. For business clients, the contract sets how much notice you give. For automatic charges to consumers, US law sets some minimums (see below).

How to set up a recurring invoice

Create one recurring profile per client and per billing arrangement:

• Client and line items. Describe what each invoice covers, for example "Bookkeeping retainer, monthly: reconciliations, payroll, month-end reports." A clear description saves questions every month.
• Frequency and start date. Choose weekly, monthly, yearly or whatever your software offers, plus the date of the first invoice. A billing cycle explains how to choose the period.
• How many invoices. Set an end date or a number of invoices for fixed-term plans, such as six installments. Leave it open for ongoing retainers.
• Payment terms. Due on receipt, net 15 and so on. See invoice payment terms explained.
• Send automatically or as a draft. Automatic sending saves time. Drafts let you review each invoice first, which is useful when hours or extras change.
• How the client pays. Add an online payment option, and decide whether invoices are paid by the client or charged automatically.

In Billed, which publishes this guide, recurring profiles work like this (Billed recurring invoices):

• you can bill daily, weekly, monthly or yearly;
• you can choose how many invoices to send, or send them indefinitely;
• invoices can go out automatically or be saved as drafts;
• you pick a manual or automatic subscription method for each customer;
• you can create several recurring profiles for the same client;
• each profile keeps its invoices and payments together.

You can charge clients automatically by connecting Stripe, and you can record offline payments, such as checks, against recurring invoices. For other tools, see best recurring payment tools and best subscription billing software.

Proration: billing part of a period

Proration means charging for the part of a billing period that a service was actually active. To prorate by days:

Amount = periodic price × days of service ÷ days in the period

Use the same method every time, and state it in your agreement. For example: "Partial months are billed by the day, based on the number of days in that month."

• Starting mid-period: bill a one-off prorated invoice, then start the recurring profile on the next regular date, as in the November example above.
• Upgrading mid-period: bill the prorated difference for the rest of the period, and change the profile from the next period.
• Downgrading or canceling mid-period: decide in your agreement whether you credit the unused part or let the current period run to its end.

Subscription billing systems can calculate prorations for you. Stripe, for example, calculates a proration when a subscription changes. It notes that "prorations only apply to charges that occur ahead of the billing period" and that usage-based billing isn't prorated (Stripe docs).

Failed automatic payments

Automatic charges fail for ordinary reasons, such as an expired card, a card the bank has replaced, or a low balance. A simple routine:

1. Keep the invoice open. Don't delete it or create a duplicate.
2. Tell the client the same day, with the invoice number, the amount and a link to pay or update their card. Billed lets you send payment reminders to your customers (Billed features). For wording, see how to write invoice payment reminders.
3. Retry or wait for the client's update. Some payment platforms retry for you. Stripe's Smart Retries, for example, retries a failed invoice payment "a specific number of times within a time period" that you choose (Stripe docs).
4. Follow your written policy if it stays unpaid, whether that's pausing the service or applying a late fee your agreement allows. See late payment policies and how to add late fees to invoices.

Consent and notice for automatic charges

Before you charge a client automatically, get their permission in writing and keep a record of it. In the US, specific rules apply to some kinds of automatic charges:

• Consumer purchases online with automatic renewal. The Restore Online Shoppers' Confidence Act covers goods or services sold to consumers online through a "negative option feature," such as an automatic renewal. The seller must:

  • "clearly and conspicuously" disclose all material terms before taking billing information;
  • get the consumer's "express informed consent" before charging;
  • provide "simple mechanisms" to stop recurring charges.

  Source: 15 U.S.C. § 8403.

• Recurring debits from a consumer's bank account. Under Regulation E, preauthorized transfers from a consumer's account "may be authorized only by a writing signed or similarly authenticated by the consumer." Whoever obtains the authorization must give the consumer a copy. If an amount will differ from the previous transfer or the authorized amount, the payee or bank must send written notice of the amount and date "at least 10 days before the scheduled date of transfer" (12 CFR 1005.10).

• Saved cards through your processor. Your processor's terms also apply. Stripe, for example, requires terms that cover:

  • the customer's agreement to payments you initiate;
  • the "anticipated timing and frequency of payments";
  • how the amount is determined;
  • your cancellation policy for subscriptions.

  It also requires you to keep "a record of your customer's written agreement" (Stripe docs).

For business clients, your contract sets these terms. Write down the amount or how it's calculated, the billing date, how much notice you give for price changes, and how either side can cancel. State law can add requirements for automatic renewals, so check the rules where your customers are, or ask a lawyer.

Common recurring billing situations

• The client pauses the service. Pause the profile instead of deleting it, so the history stays in one place.
• The scope grows for one month. Leave the profile alone and send a separate one-time invoice for the extra work.
• The client switches from monthly to quarterly. End the old profile and create a new one with the new frequency, so each profile's history is consistent.
• A fixed-term plan ends. Set the end date or invoice count when you create the profile, so billing stops on time.
• The client wants a deposit before ongoing billing starts. Invoice the deposit separately first. See the guide to deposit invoicing.

To automate more of your invoicing, such as reminders and payment matching, see the guide to invoice automation.

Frequently Asked Questions

What is a recurring invoice?

It's an invoice that your invoicing software creates automatically on a set schedule, such as weekly, monthly or yearly, from a profile you set up once. Each invoice it creates has its own number and date. The client either pays each invoice or has a saved payment method charged automatically.

Can I change the amount on a recurring invoice?

Yes. Change the recurring profile so the new amount applies from the next invoice, and leave invoices you've already sent unchanged. Give the client the notice your agreement requires first. For consumer bank-account debits in the US, Regulation E requires written notice at least 10 days before a transfer that varies in amount.

How do I prorate the first invoice?

Multiply the periodic price by the days of service, then divide by the days in the period. For a $1,200 monthly retainer starting on November 10, that's $1,200 × 21 ÷ 30 = $840. Then start the recurring profile on the first full billing date.

What should I do when an automatic payment fails?

Keep the invoice open, tell the client the same day with a link to pay or update their card, and retry or wait for the update. If it stays unpaid, follow the late-payment policy in your agreement.

Do I need permission to charge a client automatically?

Yes. Get written permission that covers the amount or how it's calculated, the timing, and how to cancel, and keep a record of it. In the US, consumer online automatic renewals require clear disclosure, express informed consent and a simple way to cancel under the Restore Online Shoppers' Confidence Act. Recurring debits from a consumer's bank account need a signed or similarly authenticated authorization under Regulation E.