What are Recurring Payments?

These payments can be set up via recurring billing for any frequency that’s agreed upon between the customer and the business. It could be weekly, biweekly, monthly, quarterly, or on an annual basis.

How Do Recurring Payments Work?

Simply put, recurring payments work as an agreement between the customer and the business, where the customer agrees to make payments on regular intervals, and the business agrees to provide the product or service for as long as the payments are being made. Once the contract ends, the customer can choose to continue or terminate the subscription.

Here’s a detailed step-by-step process to understand the recurring payments workflow:

1.) Once the customer has subscribed to your product or service, they can choose the payment method (Credit Card, Direct debit, ACH or SEPA).

2.) The customer can then enter their payment details for the first payment. These details are saved in a payment gateway for processing the subsequent payments securely.

3.) Then the payment intermediaries, the acquiring bank, credit card network and the issuing bank approve the transaction and the payment is transferred to the merchant account.

4.) The payment is debited according to a predetermined billing schedule until an active subscription. This removes the need to manually type in the payment details for every payment cycle. 

Benefits of Recurring Payments

Business leaders across the globe agree that a subscription-based model can foster sustainable growth for their businesses. According to a research by Gartner, all new software entrants and 80% of historical vendors now offer recurring payments. 

From a customer’s standpoint, they are automated making it one less thing to worry about on their to-do list. Additionally, they can make budgeting easier for customers since they know the exact amount they will be charged on a recurring basis. For businesses, subscription payments have a lot of advantages, including:

1. Predictable Cash Flow: With subscription payments, businesses can more easily predict how much revenue they will be generating each month, which can help with budgeting and revenue forecasting.

2. Customer Retention: Subscription models offer deeper customer insights as opposed to one-off purchases. A continued customer relationship provides the opportunity to develop a strong understanding of consumer behaviors and preferences. Businesses can alter their products or services according to their needs and nail the customer experience. In addition to personalized offering, the “set and forget” nature of subscription payments increases customer convenience and helps in customer retention. 

3. Minimal Manual Effort: Once you’ve set up recurring billing for your customers, you can put collections on autopilot. A strong billing software eliminates manual collection and errors, thus saving business time and money. 

4. Easy to Upsell or Cross-sell: If a customer is already committed to your product/ service and is paying via recurring payments, they may be more likely to consider additional products or services you offer. This can increase revenue and customer lifetime value for the business.

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