One of the most challenging parts of launching a business is coming up with a product or service that customers will want to purchase repeatedly. So, if you’ve got that figured out, congratulations! You’re well on your way to developing a successful enterprise.
When it comes to payment options, there is a lot to learn and get right. Take recurring payments, for instance. Setting up recurring payments gives you the option of selling products or services conveniently. It optimizes the checkout experience and makes it much easier to predict the cash flow.
Recurring Payments Table of Contents
It’s ideal for your customers especially when they don’t have to remember to send payments for every additional product they purchase, or month of service they want to extend.
You will no longer need to chase down your customers for their payment information. Once you’ve obtained a one-time consent from your customer to charge their card or electronic wallet, the deduction will be made automatically on an ongoing basis until your customer cancels the subscription, or until the recurring payment plan expires.
Done correctly, recurring payments can bring huge sales for your business.
All that said, recurring payments are considered a “holy grail” of eCommerce, making it something your business can’t afford skimping on this 2020. That’s why we’ve put together a list of eight do’s and don’ts when it comes to this concept.
What are recurring payments?
In simplest terms, recurring payments or also known as a subscription take place when customers authorize a merchant to charge them repeatedly for goods or services on a pre-arranged schedule. It can be daily, weekly, monthly, quarterly, or annually.
It requires the merchant to get the customer’s information and permission, then automatically make recurring charges to the customer’s account with no further permissions needed.
Some examples of businesses using a subscription merchant account include Netflix, gym memberships, cable companies, utility companies, newspaper/magazine publishers, and the likes.
How to set-up recurring payments?
In order to process a recurring payment, businesses need to get a merchant account or payment service provider. Both allow you to accept payments electronically, which is how recurring payments are processed.
A payment service provider handles all aspects of electronic payments, including processing, security, and depositing the funds in the merchant’s business bank account (merchant account).
A merchant accounts is a special type of bank account through which funds from credit and debit card purchases are deposited. Once set up, your payment processor will then start integrating you with payment processing and security features.
Regardless of how you choose to accept payments, how you set up recurring payments will differ depending on whether you accept payments online or via invoice.
- For businesses that use invoice
Recurring payments will be charged every time invoices are processed. For this to work, customers must agree to save their payment information within a business’ invoicing software.
When the business processes their invoices in accordance to their payment schedule, the customer should receive an email or some other form of digital receipt informing them that their payment has been processed.
Most businesses notify their customers ahead of time if whether or not they will continue their recurring payment as it will soon be processed.
- For businesses that accept payments online
For online purchases, customers typically opt-in to recurring payments during the initial checkout process. After that, subsequent payments are processed automatically, without the merchant or customer having to perform any action.
Customers will also typically receive some sort of digital notification when their payment has been processed.
Advantages of recurring payments
- Convenient and time-saving
Recurring billing offers the benefit of convenience. Instead of having to provide billing information for a routine charge repeatedly, the customer can authorize the merchant to keep payment details on file.
The merchant can then charge the designated account each month that service is in effect, or each time that the agreed-upon goods or services are delivered.
Most of the time, it is typically up to the business provider to decide on the options for payment. Some providers require that checking or savings accounts be used while others allow for checking, savings, and credit card accounts.
- Free trial of the product or service
There’s an option to set up a free trial for a certain period so your customers can make better decisions about using your product or service.
- Great relationship builder
It’s easier to build strong and lasting relationships with customers. This can lead to higher customer lifetime value. The customer journey is longer than for a one-time purchase.
Disadvantages of recurring payments
- Difficult error correction
One of the drawbacks of recurring billing for consumers is its potential to be quite troublesome when it comes to correcting a billing when errors occur.
Instead of receiving a bill, noticing a mistake, then refusing to pay the bill until the mistake is corrected, the consumer may be automatically billed for the incorrect amount, requiring additional time to obtain a refund.
It would be safer to agree to recurring billing for payments that are always about the same amount and occur on a predictable schedule because you’re more likely to quickly notice any billing errors.
Recurring billing can also lead to overlooked expenses for customers who forget about the charges. Some people will pay their credit card bills without reviewing each listed charge. They could be paying for a service they no longer need or didn’t even know they were getting. Recurring and automatic billing is also pointed as one way to scam senior citizens or other unknowing people.
TAKEAWAY
If you want your business to grow bigger, embracing the subscription-based business model is the way to go. Enterprises that have adopted this revenue model have seen tremendous growth.
By implementing recurring billing, businesses can maximize their revenue potential and see a more consistent flow of cash and foster relationships with their long-term customers. No matter what business you are in, automated recurring payment services is something worth giving a try. Contact Allied Payments to set up a recurring payment merchant account for your business.
