Recurring payments can make your customers very happy, but do you know the different types and what they mean for you and your business?
Set-it and forget-it is a great way to think of recurring payments; make sure you understand how they work for your business.
It’s 2022 and if there’s anything more ubiquitous than subscription services, we haven’t found it. Honestly, you can subscribe for anything. From shaving supplies to vegetables, clothing to adult coloring books, subscription services are a hallmark of our lives now. Even the vast majority of our media consumption takes place inside of a subscription model; think Netflix. But what makes these subscription services tick? Well, crucially, many of them have a niche and dedicated audience (looking at you Slime Box Club). But the real thing that makes them tick is recurring payments. Customer relationship management (CRM) software plays a crucial role in streamlining recurring payment processing and enhancing customer experience.
Recurring payments allow consumers to “set-it and forget-it” with services they know they’ll want for the long term. Most importantly for businesses, recurring payments are quick and easy, and allow for some forward planning by accommodating various payment methods. So how do recurring payments work, what types of recurring payments are there and what are some of the ways they can help your business? Subscription billing also plays a key role in automating payment processes and ensuring predictable revenue streams. Let’s take a look.
Recurring payment processing is a method that allows businesses to collect payments from customers at regular intervals, typically for subscription-based services or products. This system automates the payment process, significantly reducing the need for manual invoicing and sending out payment reminders. Whether you call it recurring payment processing, subscription payment processing, or recurring billing, the concept remains the same: it streamlines payment collection, making it easier for both businesses and customers.
For businesses, this means a more predictable cash flow and less administrative work. Instead of chasing down payments each month, you can rely on your recurring billing platform to handle the heavy lifting. For customers, it offers the convenience of “set-it and forget-it,” ensuring they never miss a payment and continue to enjoy uninterrupted service. This automation is a win-win, enhancing the overall efficiency of business operations and improving customer satisfaction.
When it comes to recurring payments, there are two primary types to consider: fixed and variable. Fixed recurring payments involve charging the same amount at each interval. Think of your monthly streaming service subscription or a gym membership—these are classic examples of fixed payments where the amount remains constant.
On the other hand, variable recurring payments fluctuate based on usage. Utility bills are a prime example; the amount you pay each month can vary depending on your consumption. This type of payment is particularly useful for services where usage can differ significantly from one billing cycle to the next.
Additionally, businesses can choose from various recurring payment schedules to best suit their needs and those of their customers. These schedules can be weekly, monthly, quarterly, or even annually. The flexibility in scheduling allows businesses to tailor their recurring billing to match their service offerings and customer preferences.
The mechanics of recurring payments are straightforward yet highly efficient. When a customer signs up for a recurring service, their payment credentials—such as credit card information or bank account details—are securely stored by the payment processor. At the agreed-upon intervals, the payment processor initiates a transaction using these stored credentials.
The payment processor then verifies the transaction, ensuring that the customer has sufficient funds to cover the payment. If the transaction is successful, the payment is processed, and the customer continues to enjoy the service. However, if the payment fails, the merchant may attempt to process the payment again or notify the customer to update their payment information.
This automated process not only simplifies payment collection but also enhances the customer experience by ensuring seamless and uninterrupted service. It’s a crucial component of any subscription management strategy, helping businesses maintain a steady cash flow and manage subscriptions effectively.
We love automatic and recurring payments that offer just that. One of the most important aspects of recurring payments is that they are quick, easy and seamless for customers. All types of recurring payments will offer this to your customers but for the merchant, things can look a bit different. There are two main types of recurring payments that you should consider.
Managing subscriptions effectively is crucial to ensure smooth recurring payment processes.
Regular or fixed recurring payments are the standard ones you think of. Magazine subscriptions, gym memberships and box shipments all work on fixed recurring payments. If you agree to pay $12 per month for the Pen of the Month club, you’ll be charged just that, every month, until you cancel.
Irregular or variable recurring payments change based upon the usage of the customer. Utility bills are the best example of variable recurring payments.
In both cases, the flow looks the same to the customer; they will input either their banking or card information and authorize credits at agreed upon intervals. That’s about it - they’ll get charged each month and receive their product.
On the business end, things can get a little bit more complicated. The customer will input their card information and authorize ongoing payments. Then, your bank, via your payment processor, will ask the customer’s bank if they’ve got the money to back what they’re buying. For subscriptions or recurring payments, this can often take the form of a small charge that is refundable. Then, when it’s time for the recurring payment to charge, the normal payment process will begin, just as if the customer was making the same on-time payment.
There’s nothing all that special about the recurring payment itself; your payment processor simply holds onto the payment information and charges your customers appropriately. However, business owners have a number of things to consider when they’re thinking about offering recurring payments to their customers, including managing recurring billing schedules to automate and monitor billing cycles effectively.
In the competitive realm of digital commerce, mastering subscriptions and recurring payments is pivotal for sustained success. Swipesum emerges as a transformative partner, leveraging extensive experience with recurring billing platforms, innovative tools like Staitment, exceptional customer service, and recognized industry expertise to streamline payment processes for businesses worldwide.
Swipesum's proficiency with recurring billing platforms is a cornerstone of their service. Their team of payment experts possesses deep knowledge of leading platforms such as NMI, Braintree, and Recurly. By tailoring solutions to each business's unique needs, Swipesum ensures:
This expertise enables businesses to focus on delivering value to their customers while Swipesum handles the complexities of payment processing.
At the heart of Swipesum's innovative approach is Staitment, a powerful analytics tool designed to provide unparalleled insight into payment processing. Staitment offers:
By utilizing Staitment, companies gain a competitive edge through enhanced visibility and control over their financial operations.
Swipesum's dedication to client success is exemplified by their outstanding customer service. Understanding that every business is unique, they offer:
This commitment fosters long-term partnerships and empowers businesses to navigate the payment landscape confidently.
Swipesum's impact on the payment processing industry has not gone unnoticed. Their contributions have positioned them as thought leaders and innovators. Highlights of their industry recognition include:
Depending on the type of platform with which you accept your electronic payments, your ability to set and accept recurring payments can change. Payment processors often offer recurring payment options but may lack tiered options that many businesses offering subscriptions may want to take advantage of. Integrating payment gateways is crucial for secure and efficient recurring payment processing. eCommerce platforms also tend to offer recurring payment options but also tend to offer much higher rates than one-off charges. Finally, recurring billing specialists are a great option for businesses whose income almost entirely relies on subscriptions. However, the same features that make things super convenient can also make them extremely expensive.
Your company’s size can play a huge part in your decision process for how you want to process recurring payments. Some of the larger platforms have rather large fees associated with them, and managing subscription payments with usage based billing can be particularly challenging for businesses with variable usage patterns. If you’re a small company making artisan baskets for the Pacific Northwest market, for example, you may not have the bandwidth to send over high fees for each recurring payment. Monthly fees can significantly impact small businesses, making it crucial to choose a cost-effective payment processing solution.
There are undeniable positives associated with recurring payments but there are also some negatives you have to keep in mind. Chargebacks are a problem all merchants deal with and are no different for recurring payments.
Subscription management software can play a crucial role in mitigating issues like chargebacks and ensuring compliance with industry standards.
This is an important thing to consider. If you surpass a 1% chargeback ratio, it’s very likely that you could lose your merchant account. Follow all best practices for recurring charges and subscriptions: remind customers you are going to charge them and have your merchant descriptor accurate. They can be expensive and ultimately business ending if they get out of hand. You’re also dealing with the storage of credit card info - something that your payment processor should take care of for you - and that can be a stressor too.
Security is paramount in recurring payment processing. To protect sensitive customer payment information, payment processors must adhere to stringent industry standards, such as PCI DSS Level 1. This involves implementing advanced security measures like tokenization and encryption to safeguard data.
Tokenization replaces sensitive payment information with a unique identifier or token, which can be used to process payments without exposing the actual data. Encryption, on the other hand, ensures that any data transmitted during the payment process is unreadable to unauthorized parties.
In addition to robust security measures, businesses must clearly communicate billing dates and payment terms to their customers. Providing multiple payment options can also help reduce the risk of missed payments. By prioritizing security and transparency, businesses can build trust with their customers and ensure compliance with industry regulations.
In conclusion, recurring payment solutions offer a streamlined and secure way to manage subscriptions and automate payment collection. By understanding the different types of recurring payments, how they work, and the importance of security and compliance, businesses can effectively leverage these systems to enhance their operations and customer relationships.
We can't really talk about recurring payments without mentioning a bit about cancelling subscriptions. Any reader will likely have experienced a bad cancellation experience. Either the cancel button and menu are well hidden, or you have to leap through a ton of interstitial pages to finally reach the page where you can end your subscription. No one wants to lose a customer but you can count on never getting that customer back if you make them jump through a ton of hoops to cancel their recurring payments. Now, there's no problem with an offer or two, but make it easy to understand. The Federal Trade Commission (FTC) is even looking into subscription cancellation. The agency has put businesses on notice that services need to be clear and easy to cancel. If the customer service angle doesn't get you, the possible federal probe should.
Even with all those things you’ll need to consider, you can’t really beat the value recurring payments bring to the customer’s experience. Offering a wide range of payment methods, including credit cards, digital wallets, and local payment options, can significantly enhance the customer experience. If you find the various types of recurring payments confusing, Swipesum can help. We take all the guesswork out of finding the right payment service providers for your business, no matter what size and what you sell.
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