An agreement where a consumer grants permission to a business or organization to debit their account (checking, savings, or credit card) on a recurring schedule for goods or services is a widespread financial practice. This arrangement allows for automatic withdrawals of a fixed or variable amount at predetermined intervals, eliminating the need for manual payment each period. For instance, a monthly subscription service might utilize this method to collect its fees directly from a customer’s bank account.
This method of payment offers several advantages for both the payer and the payee. It streamlines the payment process, reduces the risk of late payments or missed deadlines, and improves cash flow forecasting. Historically, it evolved as a more efficient and reliable alternative to manual invoicing and payment processing, contributing to the growth of subscription-based business models and automated billing systems.
