Billing agreement overview
Last updated: Aug 15th, 7:25am
When a seller wants to save PayPal for future payments with the buyer's consent, they enter into a contract called a billing agreement. Sellers can use the billing agreement to pull payments from the buyer's PayPal wallet in a variety of use cases, such as:
- Enabling frictionless PayPal Checkout
- Prepaid or postpaid subscriptions
- Automatic top-ups
What are the types of billing agreements?
Billing agreements depend on whether a seller or a platform owns the agreement.
| Billing agreement type | Description |
|---|---|
| Merchant-initiated agreement (MIB) | When the billing agreement is owned by the seller, regardless of whom creates the agreement or enables movement of funds using the agreement. An example can be an e-commerce retail merchant asking buyers to setup billing agreements with the merchant. Sellers can choose whether PayPal returns the same token (created the first time, even if the buyer attempts to create multiple agreements) or returns a unique token for every successful attempt. >Note: It's often easier to use the single-token approach. |
| Channel-initiated agreement (CIB) | When the billing agreement is owned by a platform that represents many sellers under the platform. The customer grants the platform permission to process third-party payments. This eliminates the need for the customer to sign a separate billing agreement with each third-party merchant present in the platform. The platform decides when and which third-party merchant payments are processed. An example can be a marketplace signing agreements with buyers to enable payments between the marketplace and the sellers the marketplace represents. |
Where and how to use billing agreements?
How you use billing agreements depends on your workflow. Refer to the two intents below:
| Intent | Description | Example |
|---|---|---|
| With purchase | When the intent is to create a billing agreement as part of a PayPal transaction. You can create an agreement depending on the outcome of the transaction. This is also referred to as a Vault On transaction. | Creating a billing agreement during checkout on an e-commerce site, or creating a subscription with an upfront payment or setup fee. |
| Without purchase | When the intent is to create a billing agreement outside a transaction. (Vault only) | During the account setup, when customers register with the merchant website. Creating subscriptions with a free trial. |
How to create and use billing agreements (Vault PayPal wallet)
You can create billing agreements for PayPal checkout out-of-the-box when the merchant signs up successfully for a PayPal Business account and enables PayPal checkout on their website using the PayPal JavaScript SDK.
Note: To create billing agreements, and use them for other use cases such as subscriptions or API integration, please contact your PayPal account manager or sales representative.
How does it work?
When the PayPal wallet is saved, either with a successful transaction or with the buyer's approval (without a transaction), the billing agreements are returned back to the seller as a vaulted token. Refer to the Vault integration notes on how to create billing agreements.