What You’ll Learn:
- How recurring payments can benefit your business
- Why clients often prefer to set up auto payments
- The process for establishing recurring payments
Many products—app or software subscriptions, gym memberships, agency services—operate on a monthly payment cycle. Rather than one lump sum payment upfront, fees are charged on an ongoing basis for as long as the customer is actively using the service or product.
If you bill your customers at regular intervals, you’ll find that adopting a recurring payment system simplifies your invoicing process, streamlines your cash flow, and reduces friction for your clients. Here’s how to know if recurring payments are right for your business and how to get set up.
What are recurring payments?
Recurring payment processing is an automated system wherein customers approve funds to be automatically deducted from their stored account or credit card at regular intervals – weekly, monthly, or annually. That means they don’t have to constantly re-enter their banking information each month or keep tabs on when bills are due.
Traditional payment methods require deliberate action from the client before you get paid. The client needs to meet you in person or respond to an invoice. With recurring payments, your clients only need to provide their payment information and their initial authorization. Then, you’re free to process their payment on a recurring basis.
The benefits of recurring payment solutions
Setting up a recurring payment model can offer huge benefits for small businesses and their customers.
- Save time
- Reduce late payments
- Improve customer relationships
- Predict cash flow
Recurring payments offer a “set-it-and-forget-it” approach to the invoicing process. Your clients will get billed, and the amount they owe will be collected automatically from previously shared payment information. You get that time back and can put it toward doing something more impactful for your business.
Reduce late payments
When clients don’t pay on time, it can have an outsized impact on business operations—maybe you were relying on that income to cover an upcoming expense. With recurring payments, you don’t have to spend time following up or worrying about late payments. Payments come out on time every time.
Improve customer relationships
No one likes being hounded over bills. Recurring payments let your customers go on autopilot. They never have to remember when their bill is due and can simply enjoy your products or services. Recurring payments are easier, more convenient, and frictionless.
Predict cash flow
Recurring payments can help stabilize your cash flow, making budgeting easier. You’ll be able to accurately predict how much cash your business will take in each month.
What are the types of recurring payment structures?
Recurring payments fall under two types: fixed and variable. Fixed recurring payments are used when you plan to charge the customer the same amount every time. If a monthly subscription to your app costs a predetermined amount, setting up recurring payment processing makes sense.
However, variable recurring payments will be a better fit if you charge your customers based on what services they need each month. Variable recurring payments are likely to change each payment period.
What types of businesses use recurring payments?
There are many different types of businesses that utilize recurring payments, especially ones that offer:
- Subscription services: Businesses that bring in subscription revenue are great candidates for recurring payments. When people subscribe to real and digital newspapers, streaming services, curated food boxes, and more, recurring payments are the easiest way to receive payment from them.
- Professional services: Professional freelancers, software designers, graphic designers, marketing agencies, etc., can opt to use recurring billing to ease their administrative burden. Depending on how your contracts are structured, invoicing based on retainer services is likely a good fit for recurring payments.
- Membership services: Recurring payments work for businesses that rely on memberships. Gyms, social clubs, and housing associations are perfect examples. These fees are usually fixed.
- Municipal services: If you forget to pay your utility bill, your electricity or water could get shut off. These variable recurring costs change based on usage, but setting up automatic utility payments reduces the likelihood of gaps in service.
- Payment plans: Payment plans have become more popular recently, especially with businesses like Affirm, Afterpay, and Klarna. If your business uses any of these vendors, your clients can split their costs into smaller payments that are easier to manage. The recurring payments will stop when the bill is paid.
Choosing a recurring payment service
Payment processing providers are not created equally. Some are significantly less expensive and easier to use than others. Here are a few different things you might consider when choosing a recurring payment processor that best fits your company.
- What’s the setup process?
The goal of switching to recurring payments is to make your life simpler and increase efficiency. That can’t happen if working with your payment provider is too complicated. Choosing a system that’s easy to set up and has an excellent interface reduces the chance of friction.
If you know how to use your payment processor, you’ll be able to pause or alter payments when necessary. Look for the ability to automatically re-attempt billing accounts after failed charges and let customers know when their cards have expired.
- What’s the cost?
Payment processing fees are not always transparent. It’s a good idea to work out your exact costs before you sign up with a new provider.
For instance, some payment processors charge extra fees for “card-on-file” recurring payments because customers can dispute those charges. There may be other hidden charges that you need to watch out for.
- What kinds of payments are important to you?
Recurring payments are often billed online, but the interaction can also take place within an app. You need a payment processor that can work with your billing ecosystem.
- Is it secure?
Your clients need to feel safe providing their banking or credit card information. Security has become even more important in the last few years as frequent data breaches have increased customer concerns.
- Is there tech support?
Proper tech support is essential. If your payment processor goes down, it could interrupt your revenue. Before you let your company rely on a payment service, find out what happens if you run into trouble. Do they offer a dedicated customer service line or troubleshooting resources?
Setting clients up on recurring payments
Getting your clients set up with recurring payments takes a few steps. First, clients need to select their desired payment schedule. They may have only one choice or they may have options. For instance, some businesses offer different tiers of service.
Once the schedule is set, clients need to provide their billing information and authorize all future payments.
If you’re using a quality payment processor, the next step is simple. The software will automatically bill your clients at regular intervals until you make a change, like increasing the payment amount or your client cancels or suspends the service.
After everything is set up, automation takes over. You can even set up automated receipts after payment is received. You don’t need to do anything beyond monitoring the account. Everybody wins!
Hopscotch can help your business keep payments and invoicing on track. Create an account today!