If your business is thinking of offering subscription-based products or services, you’ll want to be able to accept recurring payments on your website.
This is simple to do, but you’ll want to understand all the ins and outs to maximize your profit and offer your customers the best user experience.
I’ve used several different methods to set up recurring payments for my businesses, and I’m here to give you the full picture, including everything you need to know.
What Are Recurring Payments?
Recurring payments are a purchase model in which a customer gives a merchant permission to charge their credit card or withdraw funds from their account automatically at regularly scheduled intervals in exchange for a product or service provided.
The customer only has to enter their payment information once. Then, the recurring payment is deducted automatically at the designated times, until the agreed-upon end date.
With the “set it and forget it” model, a customer can purchase a subscription, select the recurring billing option, and their payment method will be automatically charged at the designated time. From your perspective as the merchant, the recurring payment will come in each billing cycle without you having to take any action.
How Do Recurring Payments Work?
If you want to accept online payments, the basics are the same as with any other payment system. You’ll need to have a payment infrastructure in place, including a merchant account, payment gateway, and payment processor. (Pay.com provides a full payment infrastructure and it’s really easy to set up - you can read more about it here.)
When a customer purchases a subscription on your website and clicks through to the checkout page, the process will look something like this:
- The customer reads the terms and conditions and clicks to accept.
- The customer chooses their preferred payment method.
- The customer enters their payment details, which are then stored in the payment gateway to be used for the future transactions.
- The transaction is processed just like any other online payment processing, with approvals from the credit card network and the issuing bank, and finally, a transfer to your merchant account.
- The recurring payment automatically takes place on each of the predetermined dates. The customer receives a confirmation of the transaction status and an automatic invoice. As the merchant, you don’t have to do a thing.
- The recurring payment continues to be charged until the predetermined time period is up or until the subscription is canceled.
While the process is the same for both, it is important to note that there are actually two different types of recurring payments. Fixed recurring payments are also known as “regular,” while variable recurring payments are also called “irregular.”
Regular [Fixed] Recurring Payments
Regular recurring payments are charges of equal amounts each time. For example, a gym membership that costs the same amount each month or a monthly magazine subscription would both be fixed recurring payments.
Irregular [Variable] Recurring Payments
In some cases, the payment amount is subject to change, depending on how much the customer used a particular product or service. This makes the recurring payment irregular, or variable. An example of a variable recurring payment is an electric bill or a phone bill - the monthly amount is likely to change depending on usage.
Why Recurring Payments Are Good for Your Business
Recurring payments come with a number of benefits, including:
- Fewer late payments: When you allow your customers to pay through recurring payments, you can have the peace of mind of knowing that the payments will be collected automatically and on time.
- Fewer manual tasks: Rather than having to manually create and send out invoices on a regular basis, the recurring payments method means you can leave all the work to the payment system.
- Better customer relationships: Many customers love the convenience of recurring payments. They only have to enter their payment details once, and they don’t have to remember to make additional payments on time.
- Fraud protection: The payment gateway stores customer data on a secure server. Most payment gateways use advanced fraud protection methods, like tokenization and PCI-compliance.
Easier budgeting: When recurring payments are involved, your income is more predictable, because you know exactly how much recurring revenue you will receive on each designated billing date.
Recurring Payments: The Pros and Cons
Types of Recurring Payment Methods
Whether it’s recurring payments or one-off purchases, it’s up to you to decide what payment methods you’ll accept on your site. The more options you provide, the better - customers appreciate being able to pay through their preferred method.
Most recurring payments will be through credit card, debit card, or ACH transfers.
Credit or Debit Card Payments
It’s easy for customers to use their credit or debit card to set up a recurring payment. They just have to enter their information once and then it will be saved for future processing on the designated billing dates.
When setting up automatic payments using a credit or debit card, the customer must sign an authorization form giving you permission to charge their card on the designated dates. This document is important to have on file in case of any disputes or issues that may come up.
Recurring ACH Payments
Automated Clearing House (ACH) payments are made directly from a customer’s bank account. It can take a few business days before the funds arrive in your account, because the bank must first verify that the customer has sufficient funds to cover the transaction.
What Types of Businesses Use Recurring Payments?
Many different types of businesses can benefit from the recurring payments model, including:
- Utilities: Electric, gas, water, and phone companies encourage customers to sign up for the automatic recurring payment option to ensure that payments are made promptly.
- Membership-based businesses: Gyms, co-working spaces, course providers, and other ongoing service providers charge users a monthly or annual fixed fee.
- Subscriptions: No longer just for magazines and newspapers, this model has been adopted by all types of businesses across industries from food deliveries to SaaS.
- Financial Services: Insurance products, loan repayments, and other financial instruments can also utilize recurring payment services to make it easy for consumers to pay a fixed amount each month.
- Payment Plans: Sellers can offer payment plans to allow customers to pay off their balance over time, especially for larger purchases. Automatic recurring payments ensure that the payments are made on time.
Can a Customer Stop Their Recurring Payments?
Customers can stop recurring payments by contacting the credit card company and asking them to cancel the payments or by canceling directly with you.
As a seller, it’s in your best interest to provide your customers with clear terms and conditions for recurring payments, including the policies and procedures for cancellation. You can decide under what conditions the customer can cancel and whether they will need to pay any penalties.
Recurring Payments with Pay.com
When you use Pay.com as your payment infrastructure, you can offer your customers a wide range of payment options. All of the backend logistics are taken care of, ensuring that all transactions are processed quickly and securely. Your customers get a smooth, seamless purchasing experience and you get the money in your bank account quickly.
You can keep track of all of your recurring payments in the customizable dashboard. Then, you can export this information for use in budgeting and creating your financial statements.