Billing is key to a successful business because it links the services provided with compensation. Effective billing practices can lead to healthy relationships with customers and stable revenue, but poor practices can cost a business both. In the United Kingdom, billing is a major reason why businesses fail to collect, on average, 5.87% of the revenue they’re owed each year.

Below, we’ll discuss what types of billing modern businesses use – including pay-as-you-go models and hourly billing – and their pros and cons.

What’s in this article?

• What are the types of billing?
  
• What are the challenges with managing multiple billing types?
  

What are the types of billing?

Each billing method appeals to different markets, product types, and client preferences. There isn’t one that fits every business. Understanding these options – and knowing what might work well for your setup – can help create a better checkout experience, make revenue more predictable, and keep your customers happy.

Recurring billing

Recurring billing charges a customer a set amount on a regular schedule – usually monthly or annually, though some businesses prefer weekly or quarterly cycles. This model is popular with service-based businesses that have ongoing customer relationships, such as subscription services, membership schemes, and box-of-the-month clubs. It gives customers a simple experience: just one sign-up and then automatic renewals.

Recurring billing makes revenue more predictable, reduces administrative tasks, and builds ongoing relationships with customers to create brand loyalty. But it requires businesses to carefully communicate billing dates and rates.

Recurring billing is commonly used for:

• Digital services, including software-as-a-service (SaaS) platforms

• Streaming media (e.g. video or music subscription platforms)

• Memberships (e.g. online communities, coworking spaces)

• Utilities (e.g. internet, phone)

Hourly billing

With hourly billing, businesses charge clients for the exact amount of time spent on a project or task. A consultant or freelancer might record their hours worked on a time sheet and then invoice the client for each hour. Rates vary based on skill level, the complexity of the project, and market conditions.

Hourly billing lets businesses handle shifting scopes, especially when a project’s direction changes before completion. This type of billing guarantees compensation for all the time you work, and it feels transparent to clients who can see exactly what they’re paying for. But hourly billing makes it more difficult to predict total costs, which might deter clients who prefer a fixed budget, and it can encourage clock-watching or lead to questions about productivity. It also requires more invoice management because you’re always tracking and reporting hours.

Hourly billing is commonly used for:

• Consulting (e.g. business, financial, technical)

• Legal services

• Freelancing (e.g. designers, writers, programmers)

Flat-rate billing

Flat-rate billing charges a single, predetermined fee for a service or product. Clients know the total upfront, and the number of hours spent on the project won’t change that total. Designers, contractors, and repair services often use this model to define expectations from the start.

Flat-rate billing suits jobs with well-defined outcomes or standardised processes. Both parties know what to expect and can budget more easily. When a contractor says, “We’ll build your deck for £5,000 total”, this assures the customer there won’t be hidden fees. Placing clear boundaries around what’s included is important so the project doesn’t expand beyond what the rate was built to cover. Flat-rate billing can underprice your work if the scope expands unexpectedly or lead to disputes if clients expect unlimited revisions for a single fee.

Flat-rate billing is commonly used for:

• Home services such as heating and air-conditioning repair, and painting

• Web design or creative projects (e.g. branding, designing logos, building a website)

• Manufacturing (e.g. standard product runs)

Milestone billing

Milestone billing breaks a project into phases or checkpoints, with invoices issued each time a phase is completed. This is often used in longer or more complex initiatives in which progress isn’t purely based on time.

This method also helps build trust: clients see tangible progress, and providers see steady payments. The biggest challenge is setting realistic milestones and ensuring all parties understand what triggers an invoice. Milestone billing has a lower financial risk because you’re not waiting for project completion to get paid, but delays at one phase can affect subsequent phases and complicate billing.

Milestone billing is commonly used for:

• Construction (milestones might include the architectural planning phase, completing the structure, and finishing steps)

• Software development (e.g. beta releases, feature completions)

• Design and branding (e.g. concept sign-off, final artwork approval)

Value-based billing

Value-based billing ties the price of a product or service to the results it achieves for the client. This model is often associated with high-end consulting; for example, a consultant who saves a business £500,000 might bill the business for a percentage of those savings. This model depends on the outcome rather than hours worked or fixed costs, and it can appeal to clients who prefer to pay for proven results. It calls for strong trust and data-driven tracking to measure impact.

When value-based billing is done correctly, it can nurture deeper partnerships between businesses and clients because both parties share the same overall goal. That said, calculating the actual value delivered can be tricky and often subjective, and providers might spend more energy quantifying results than performing the work. Another risk for providers: if the outcome fails, there’s no payment.

Value-based billing is commonly used for:

• Law (particularly injury, employment, or class action cases)

• Recruitment (e.g. fees tied to successful hires)

• Consulting (e.g. marketing fees based on conversions)

Usage-based billing

With usage-based billing, sometimes known as pay-as-you-go pricing, businesses charge customers based on how much of a product or service they consume. For example, a cloud-based storage service might charge per gigabyte or a utility might charge per kilowatt hour.

This kind of billing matches payment to actual consumption, lets customers scale up or down without committing to a flat fee, and can be ideal for unpredictable usage patterns. But it demands precise measurement and tracking tools to monitor usage. Revenue can fluctuate as usage rises and falls, which complicates projections. Complex processes for gauging consumption can lead to billing disputes if metrics aren’t easy to justify.

Usage-based billing is commonly used for:

• Cloud computing (e.g. server usage, data storage)

• Utilities (e.g. electricity, water)

Retainer billing

Retainer billing involves a client paying a set amount in advance, usually on a recurring schedule, for ongoing access to a service. This model is common in industries in which clients expect continuous support and the service provider wants predictable monthly income. To avoid confusion, businesses must confirm exactly what’s included in the retainer and how additional requests will be handled.

Retainer billing guarantees a dependable monthly income for providers and assures clients a service expert is “on call”. It also simplifies planning because both sides know how many hours or deliverables are set aside. But clients might feel as though they’re wasting money if they don’t maximise their use each month, and scope creep can become a factor if it’s unclear which tasks are included.

Retainer billing is commonly used for:

• Legal practices (e.g. monthly or annual retainers)

• Marketing agencies (e.g. reserved hours or campaigns)

• Consulting or coaching (e.g. ongoing advisory services)

Progress billing

Progress billing is a variation of milestone billing. Instead of lump sums at checkpoints, invoices are issued periodically as work moves forward. This model is especially common on large, long-term projects when you want to finance them as they develop. Construction firms, for instance, might submit progress invoices every month.

Progress billing helps maintain a steady income during lengthy projects and spreads the client’s payment obligations over time, which can make them more manageable. The method also encourages better collaboration because the client and business know what has been accomplished and what is coming. But it requires detailed tracking and documentation of how much of the project is done, and disputes can arise if the client doesn’t understand the billing schedule up front.

Progress billing is commonly used for:

• Construction (e.g. residential or commercial developments)

• Engineering and infrastructure projects

• Custom manufacturing (e.g. complex fabrication jobs)

Prepaid billing

With prepaid billing, customers pay upfront and then spend a balance or service credits over time. This leads to immediate payment, which boosts short-term revenue and helps control debt risk because customers can’t overuse the service without paying. And this model helps manage usage because customers can track their remaining credits.

Conversely, customers might hesitate if they’re unsure how much service they’ll need or if they prefer to pay after they’ve used the service. This billing type might also require special software to handle balances, replenishments, and expiry dates.

Prepaid billing is commonly used for:

• Telecommunications (e.g. prepaid mobile plans)

• Gift card schemes (offered by retailers, restaurants, etc.)

• Subscription boxes that bill for future deliveries

Hybrid billing

Hybrid billing combines two or more methods, which can be especially helpful for businesses that serve a range of customers. For example, a cloud-based hosting service might charge a recurring monthly fee plus a usage-based rate for any bandwidth that exceeds a threshold. A freelancer might bill a retainer plus an hourly rate for work beyond the scope of the retainer.

This billing type offers flexibility for customers with different needs and balances predictable revenue with usage-based charges. Some customers might use minimal resources and stick to the flat rate, while others might pay extra for higher usage. The biggest challenge is clarity – in contracts and billing statements. Customers need to see how each piece is calculated.

Hybrid billing is commonly used for:

• Telecommunications (e.g. monthly plan plus pay-as-you-go extras)

• SaaS businesses with tiered rates plus usage-based pricing for overages

• Insurance (e.g. fixed premium payments)

Per-unit billing

Per-unit billing charges a defined amount for each item sold and is the most straightforward billing type on this list. The model is useful in retail and manufacturing and scales well with large orders – you multiply the item count by the cost per item.

But if your business model leans toward custom work or intangible services such as design and development, a more flexible billing method might be a better fit. Prices can also change if raw materials get more expensive, which might require frequent updates.

Per-unit billing is commonly used for:

• Retail (e.g. physical goods sold individually)

• Wholesale (e.g. pallets, bulk goods)

• Manufacturing (e.g. quotes for each unit produced)

What are the challenges with managing multiple billing types?

Businesses often employ multiple billing types. A tech startup might offer a subscription product and create custom software for larger clients on a fixed-fee or milestone basis. A marketing agency might charge ongoing retainers, hourly rates for ad hoc tasks, and performance-based fees for high-impact campaigns. Though this flexibility can help businesses serve a broad customer base, it can also introduce administrative and operational hurdles. Here are a few common challenges:

• Complex invoices: When businesses use different billing types, creating invoices can become complicated. You might need more specialised software to handle recurring subscriptions, usage-based charges, one-off fees, and milestone billing. Calculation mistakes, missed line items, or unclear statements can confuse clients and strain relations.

• Tracking and reporting: A usage-based model requires exact metrics, hourly billing requires time sheets, and a project-based method requires milestone tracking. Collecting and aggregating this data is important for accuracy. Mixing them can overwhelm your team if it is not prepared to monitor each type in real time.

• Communicating with customers: Customers might feel lost if they’re subject to multiple billing structures, especially if they purchase multiple services that are billed differently. A client might subscribe to your monthly base service, pay for hourly consultations, and sign a performance-based contract. Without clear guidelines and explanations in plain language, misunderstandings can be an issue.

• Managing subscriptions and renewals: Recurring or subscription billing requires continual management of renewals, upsells, downgrades, and cancellations. If you also have one-off project pricing or usage-based fees, you need a system to keep all customer data in one place.

• Regulatory and tax obligations: Billing laws vary by region. Some jurisdictions have strict rules about cancelling subscriptions, usage-based disclosures, or disclaimers regarding performance-based fees, and these rules are often more complex if you operate internationally. Taxes also differ based on how goods and services are defined.

• Integrating with other systems: Billing ties together your accounting software, customer relationship management (CRM) system, analytics tools, and more. A business that uses multiple billing types might need to integrate them all into one platform that aggregates data so it can be assessed holistically. The more billing types you use, the more complicated that integration becomes.

• Balancing consistency and flexibility: Customers enjoy flexible payment choices, but each additional option introduces challenges for your finance team. Businesses have to decide how much variety they can offer while keeping operations sustainable. If you adopt new billing types too quickly, you can create in-house challenges.

Solutions

Create strong internal systems to manage each of these challenges, and thoroughly train your staff so each department can handle questions about your types of billing. Standardise processes where you can. For example, use a consistent invoice template that highlights how fees are calculated across models, and outline each billing type in your terms of service to keep customers informed. You can also invest in specialised billing and payment software that supports multiple billing models to minimise errors and administrative work.

Stay agile with how you evaluate and update your billing structures. If you spot recurring issues or new market demands, refine your offerings.