Automating subscription invoicing with fixed amounts and direct debit

Setting up recurring invoices

Almost every bookkeeping or invoicing package can repeat an invoice periodically. You record the amount, rate, rhythm and start date per client, and the software creates and sends the invoice on the agreed day. It matters that the numbering runs on and that the period appears on the invoice, for example the month the subscription relates to. See invoice numbers and the rules and creating your first invoice for the mandatory details.

Decide deliberately whether to invoice in advance or afterwards. Invoicing in advance is better for your cash flow and usual with subscriptions; afterwards makes more sense if the amount depends on actual usage. If you work with a fixed price plus variable extra work, put the subscription on a fixed invoice and bill the extra work separately; see agreeing and invoicing extra work.

Direct debit: what you need

With direct debit you collect the amount from your client's account yourself. For that you need three things: a direct debit contract with your bank or a payment provider, a creditor identifier and a mandate from each client. That mandate may be digital, as long as you can show who gave it and when. Keep those mandates carefully, because without one a collection is invalid.

Announce each collection in advance. That is called a prenotification and in practice happens by sending the invoice with the date you will collect. A consumer can reverse a collection up to eight weeks later without giving a reason; business collections have different, stricter rules. So keep a fixed rhythm and make sure the client always has the invoice before the collection date.

Expect a percentage of failed collections, for example from insufficient funds or a closed account. Make sure those reversals show up in your records so you can follow them up. The charges the bank makes for them are ordinarily deductible, and usually carry no VAT; see recording platform and transaction fees.

The VAT moment and the year-end

With subscriptions the VAT is due in the period in which you issue the invoice, even if the period it relates to is still to come. If in December you invoice the first quarter of the following year, that VAT belongs in your return for December or the fourth quarter. The main rule is in selling subscriptions and VAT and in recording prepayments and deposits.

For your profit it works differently: there the income belongs to the period in which you perform the service. If you invoice ahead across the year-end, the part relating to next year sits on your balance sheet as income received in advance rather than in this year's profit. That is one entry at your year-end close, and anyone who skips it overstates their profit. See the year-end checklist.

Your monthly check

Automating does not mean you stop looking. Once a month check three things: have all subscription invoices been created and sent, did all collections succeed, and is anyone still on the list who has already cancelled. That takes fifteen minutes and prevents the two mistakes that cost most here: invoicing a departed client and a stalled collection nobody noticed.

Build that check into your fixed rhythm; see a monthly routine for your records and chasing debtors. If a client falls behind, follow the ordinary route with a reminder and a formal notice; the deadlines and costs are in statutory payment terms and collection costs.

• Record the amount, rhythm and start date per client in your software.
• Always state the period the invoice relates to on the invoice.
• Keep every direct debit mandate and announce the collection in advance.
• Record periods invoiced ahead across the year-end as income received in advance.
• Check monthly that all invoices and collections succeeded.

Frequently asked questions