What is a Recurring Payment? Definition, Types, and Benefits

Recurring payments allow for easy and more convenient sales of subscriptions and other products that require ongoing payments.

Some merchants rely on one-off purchases for the bulk of their income, and others promote subscriptions or other ongoing purchases that require recurring payments. Recurring payments usually take place weekly, monthly or annually and are charges a merchant is authorized to take from a customer’s payment method on an agreed-upon schedule. 

The market for subscription ecommerce products has grown over 100% per year over the last few years. This means there is plenty of demand and opportunity for any ecommerce merchant to offer recurring services or a subscription that requires customers to set up recurring payments or subscription billing. 

There are benefits for both the merchant and the customer, and setting up recurring payments is certainly more convenient for both sides of the transaction. As a merchant, you’ll get paid on time and lower your administrative costs. From the customer perspective, they don’t have to re-enter their credit card or other payment information or remember to pay the bill each month. This article will answer the questions of what are recurring payments and what is subscription billing and will provide all the information you need to know to start recurring billing. 

Definition of Recurring Payment

A recurring payment is a payment that gets made every week, month or other regularly scheduled time without the customer having to re-enter their payment information. Recurring payments, also knowns as subscription billing, are most commonly used when a customer purchases a subscription for an ongoing service or product or divides a larger payment into smaller chunks to pay off over time. 

What are the Types of Recurring Payments?

Recurring payments are also called automatic payments, and when a merchant charges a customer on a recurring basis the process is called recurring billing. 

There are two main types of recurring payments - fixed and variable. Both involve the customer’s card or other payment method being charged at certain agreed-upon dates without the customer needing to be physically (or virtually) present. Once the customer gives their permission up front - often via a credit card authorization form - the merchant is free to charge the card in exchange for the subscription or goods that they will receive on an ongoing basis. 

Fixed Recurring Payments

When a customer is charged the same amount at each scheduled time, it is called a fixed recurring payment. This type of recurring payment is often used for magazine subscriptions or other monthly subscriptions. 

Variable Payments

With a variable recurring payment, the amount charged each time will be different depending on the customer’s actual use or purchase of a service of goods. For example, an electric bill may be set up as a recurring subscription but the actual amount charged changes depending on the customer’s usage of electricity. 

How do Recurring Payments Work?

In order for an online merchant to accept recurring payments, you must first know how to set up a merchant account and set yourself up with a payment service provider so that you can accept payments online. The most efficient and easiest way to set up recurring billing is via your payment services provider so that once the customer enters their information one time, all of the back end steps (i.e. charging the customer and depositing the funds in the merchant’s account) are taken care of automatically.

Automatic Payments

After the initial set up, recurring payments generally get charged automatically. This process is referred to as an automatic payment. The process that takes place in the backend is identical to what happens when a customer enters credit card information to make a purchase. Once the automatic payment is complete, a receipt gets sent to the customer. 

Recurring Invoices

Depending on the business model, some merchants prefer to send recurring invoices rather than set up recurring credit card payments. In this billing model, it’s just the invoice that is automatically sent to the customer on a regularly scheduled basis, and then the customer must make the payment manually. 

Types of Automatic Payments

Automatic payments can be made using a credit card or other mobile payment options. 

Recurring Credit Card Payments

It’s easy for consumers to set up automatic payments using a credit card, and this method also provides merchants with a reliable and predictable cash flow. On the downside for merchants, however, recurring credit card payments do have a higher payment failure rate than debit cards or other options. This is primarily because credit cards may expire mid-subscription without the consumer realizing. 

In addition, recurring payments using credit cards tend to be more expensive for merchants than other methods. 

Recurring Mobile Payments

Most mobile payment providers like ApplePay and GooglePay also allow for recurring payments. As a merchant, it’s up to you to decide which payment methods you will accept, but whichever methods you offer make sure that you clearly indicate the billing frequency and amounts before the customer authorizes the recurring payment. 

Recurring ACH Payment

Another recurring payment option is ACH, which allows merchants to debit a customer’s bank account directly without the need for a credit card or other payment method. ACH payments usually have lower fees and also eliminate the risk of a failed payment

What is the Process of Accepting Recurring Payments?

In broad terms, recurring payments operate just like any other payment. In order to accept recurring payments, a business owner must open a merchant account and onboard a payment infrastructure solution. The payment solution takes care of the payment processing and making sure the money goes from the customer to the merchant. 

The process generally follows the following path:

  1. Customer chooses a recurring payment method from the options available on the checkout page.
  2. Customer confirms acceptance of all of the terms and conditions including payment amount and schedule of payments.
  3. Customer enters relevant payment details which are then saved in the system to be used for future billing dates.
  4. Customer receives an invoice on each billing date.
  5. Recurring payment takes place on the scheduled date(s).
  6. A receipt is sent to the customer. 

This process continues until the subscription or recurring payments expire. 

Who are Recurring Payments Intended For?

Recurring payments can be used in many different circumstances, including:

  • Subscriptions - Subscription billing models can include magazines, streaming services, technological products and subscription box services. 
  • Memberships - Gyms, professional organizations, co-working spaces and other organizations charge fees using recurring billing.
  • Government - Some people choose to use recurring payments to ensure that they remember to pay their taxes on time (this is a good example of variable payments as the amount is likely to change over time). 
  • Services - Service providers like therapists, personal trainers and child care providers often set up recurring payments to collect their monthly fee.
  • Payment Plans - Sellers of big ticket items often offer payment plans to allow for customers to pay off their balance over time. Automatic recurring payments ensure that the payments are made on time. 

How Recurring Payments Can Benefit Your Business?

The biggest benefit of recurring payments is the convenience offered, saving time and hassle for customers and merchants alike. Following are some of the key benefits:

Minimize Effort and Save Time

With recurring payments, the customer does not have to re-enter the payment information each time payment is due. The entire process can be automated and there is no need for any manual tasks. The administrative tasks for the merchant are also significantly reduced, freeing up time for other business-growth tasks. 

Defend against Fraud

The payment services provider stores the customer’s payment information securely and offers full protection against fraud. Because the consumer does not have to re-enter the information, they are not risking anyone watching them and gaining access to their credit card or other financial information. The merchant as well can rest assured that each transaction will go through as safely and securely as the first one. 

Improve Customer Relationships

Customers love convenience and offering them the ability to use recurring payments will make them love your site. Recurring payments means customers only have to enter all of their information one time, knowing that the payment will be processed each month (or other interval). They don’t need to remember to pay a new invoice each billing cycle, but rather they can just rely on the fact that it’s all taken care of. 

Reduce Late Payments and Collection Time

No merchant wants to waste valuable time tracking down delinquent customers and chasing late payments. Once a recurring payment is set up, there’s no room for error and you can sit back and watch the payments come in on the designated date. 

Recurring Payment Services with Pay.com

When you use Pay.com as your payment service provider, you can offer your customers a wide array of payment options. All of the backend logistics are taken care of by Pay, 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.

The same process is true for both one-off and recurring payments. Once the customer enters their information the first time and authorizes the recurring charges, Pay.com’s system stores the data securely. When the time comes for each subsequent payment, there is nothing that you or the customer have to do - the system simply charges the card (or other payment method), sends the customer a notification and receipt and you receive your income. 

Can you Cancel Recurring Payments and Billing?

When you sell a subscription or other product that requires recurring payments, you must make the terms and conditions very clear. Included in those terms should be a process for what happens if the customer wishes to cancel the subscription, either in the middle or when the proscribed term is over. Depending on the terms, if a customer chooses to cancel they will notify you, and it is your responsibility to amend the system and make sure that the remaining charges are not made. 

In some cases, the customers may turn directly to the credit card company or other payment method provider to cancel the recurring payments. If this happens, then the next time you try to process the charge, it will fail. 

It is also, of course, possible for you, as the merchant, to go into the backend of your payment system at any time and cancel a recurring payment should the need arise. If, for example, a customer is going on vacation and wants to pause the shipment of a subscription box, you can also freeze the recurring payments for a specified amount of time and then resume. 


Offering your customers the option to use recurring payments for subscriptions, memberships or other purchases that require ongoing payments is a great way to ensure a predictable cash flow for your business. The level of convenience that recurring payments affords to both merchant and customer alike will improve the overall customer experience and make your administrative process more efficient. Of course, recurring payments are not possible in every line of business, but if it is something that can work for yours, it is worth a try.

Related Content


How much does it cost to set up recurring payments?

The cost of setting up recurring payments will differ depending on your payment services provider. The costs tend to be slightly higher than they are for one-off payments, but the trade-off may be worth it considering the predictable and stable cash flow and the convenience of knowing that you do not need to chase payments.

How do you cancel a recurring payment on a credit card?

A customer can cancel a recurring payment on a credit card by calling the credit card company and requesting that they stop future payments. They can (and should) also notify the merchant. As a merchant, you can stop any recurring payments that are set up via your payment services provider.

How do you cancel a recurring payment on a debit card?

The same as with a credit card, a recurring payment on a debit card can be canceled by informing the card provider that payments should be stopped. It’s important to remember that debit card payments are deducted from the account on the day that the charge is made, so cancellations of a debit card recurring payment should be made at least three business days before the next charge date. This is an important fact for a merchant to include in the terms and conditions of a recurring subscription or other recurring payment plan

How do I stop recurring payments?

As a merchant, you can stop recurring payments through your payment system, by canceling the relevant payments. If a customer notifies you that they would like to cease payments, then this is what you should do. Customers may also inform their credit card (or other payment method) company directly to stop payments.

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