In their simplest form, recurring payments are ongoing transactions between two parties that occur at regular intervals. They have gained popularity in recent years because they facilitate access to services, continued membership to a platform, or delivery of merchandise. Incorporating them into your company can elevate customer experience and refine your own internal business processes while providing you with recurring revenue.

The basics of recurring payments.

You can choose to offer the recurring payment model for all of your transactions or feature it as one of the options available to your customers. In either case, the process is the following.

• You configure your point of sale system’s software to accept recurring payments.
• You and your customer agree on the terms, including the payment amount for each billing, payment intervals, when payments are due, the expiration date for installment plans, and any applicable interest rates and terms.
• The customer inputs payment processing details such as account information, card number, expiration date, CVV, and billing address.
• You submit an authorization request to the issuing bank or other financial institution.
• If approved, you can charge the customer immediately for their first payment or store the information until a later date.
• Future payments process automatically until the customer cancels or the terms expire.

Types of recurring payments.

There are various types of recurring payment models that you can implement according to your business and customer needs.

• Fixed. The customer pays a consistent amount each billing cycle. Common examples are software subscriptions and insurance premiums.
• Irregular recurring. The charged amount varies between payment cycles, often according to usage or quantity. Utility bills and some subscription services are common examples.
• Negative option. A customer agrees to receive a product or service in exchange for making automatic payments. This membership-based payment arrangement commonly occurs with clients of gyms.
• Installment-based payments. The customer pays for a purchase over a set period. The popular “buy now pay later” model is an example of this arrangement.

The technology behind recurring payments.

Automatic bill payments take place thanks to your point of sale system as well as other supporting software. Your POS is equipped with a recurring billing feature that you configure with your payment service provider. When you set up the arrangement, your system interacts with web-based software known as payment gateways that help to facilitate the transaction. These gateways act as intermediaries between you, your customer, and the relevant financial institutions in order to authenticate and process the payment. Then your POS comes back into the picture to perform any automated notification and invoicing tasks you have previously set up.

Implementing recurring payments for businesses.

Companies are embracing recurring payment models because they offer significant benefits to all parties involved. 

• Predictability. Customers and merchants alike know when payments will be withdrawn. For the merchant, this provides more accurate knowledge of income that can be used to pay expenses, buy extra inventory, or plan for the future.
• Convenience. Customers don’t need to worry about forgetting to pay their bill, leading to uninterrupted products or services. Merchants are less likely to need to chase late payments.
• Customer relationships. With set-and-forget billing, merchants can focus less on transactions and more on enhancing their relationship with the subscriber. This can be done through the lines of communication that have already been established when the subscription plan was initiated.
• Customer retention. Buyers tend to remain loyal to a brand that provides products and services reliably and consistently. It is easier to remain a client of a subscription box model from a brand you know and trust than to go through the trouble of purchasing products manually every time you need them.

Customer experience and retention.

When a customer’s payment experience is smooth and seamless, they are more likely to be satisfied with your company. As a result, they will tend to remain loyal to your subscription-based products and services and may also often purchase additional items and refer their friends and family. Happy buyers mean a lower churn rate, the measure that tracks when customers stop subscribing to a service or recurring billing arrangement.

Managing recurring payments.

Running a successful subscription-based program is simple if you take the following steps.

• Be transparent about your policies as well as how the plan works. This reduces the failed payments and chargebacks that can stem from customer confusion.
• Support multiple forms of payment. In addition to credit and debit cards, give customers other options including e-checks and digital wallets.
• Offer several pricing options based on customer preference and your business needs.
• Make security and encryption a priority. Cyber criminals are always on the prowl for vulnerable websites that are easy to infiltrate. Reduce your chances of becoming the next victim by investing in a payments platform and recurring billing software that are PCI-compliant. Also, encrypt all cardholder data, and be sure that your internal systems are protected with security measures.
• Invest in a system that communicates price changes and other information to customers throughout the course of their subscription.
• Use dunning software to cut down on payment failure due to involuntary churn. This software sends out emails that are distributed according to predetermined triggers or remind customers about payments and card expiration. These allow subscribers time to fix any issues in accordance with your late payments policy.

Recurring payment FAQs.

The following are answers to some of the most common inquiries about recurring payments.

Are recurring payments secure for customers?

Yes. As long as you, the merchant, invest in software that is compliant with the Payment Card Industry Data Security Standard (PCI DSS) and any other regulations specific to your industry, customers can expect a safe, reliable payment experience in which their data is managed, stored, and transmitted using the highest tokenization and encryption protocols.

How do businesses manage recurring payment schedules?

There is a great deal of flexibility in the subscription model. Software can be configured to request payments on a variety of billing cycles: weekly, monthly, annually, and more. The key is to communicate with customers to learn their preferences. Then, set your recurring billing software to accommodate their requests, always being sure to keep your business needs in mind.

What is the difference between recurring and one-time payments?

A recurring payment happens repeatedly over time. By contrast, a one-time payment encompasses the entire bill in a single transaction.