Payment Hub

Complete Guide to Recurring Payments For Small Business and Enterprise Companies

Updated August 21  |  7 min read
Key Takeaways
  • Recurring payments are automatic payments that occur on a periodic or regular basis.
  • Setting up recurring payments for your business allows customers to receive products or services regularly, which increases customer retention and satisfaction.
  • The model and products or services that will have a recurring payments or subscription option will impact your choice of payment gateway, through which you'll process the payments automatically.

Recurring payments can provide several benefits for your business, including a constant revenue stream, increased customer satisfaction, and easier, more timely payments. Let's dive into what recurring payments can do for your business and how you can choose the best recurring payment system.

The right recurring payments system can benefit your business.

What Is a Recurring Payment?

A recurring payment, also known as a subscription, recurrent billing, or automatic payment (autopay), is an electronically delivered payment that repeats on a set timetable.

Recurring payments automatically charge customers on a regular basis for things such as memberships, subscriptions, lessons, and services. To make recurring payments, customers must sign a one-time authorization form.

Why Are Recurring Payments Helpful?

Recurring payments will be helpful for your business if you have customers who want to pay for and receive something on a regular basis, such as the perks that come with a premium membership to your platform. For example, SaaS-based organizations leverage a monthly billing model to decrease the upfront cost, while creating secured and predictable revenue streams.

Customers often want to continue enjoying certain benefits that come with continuously receiving a product or service, and they don’t want to have to remember to go into their account to set up payment for the same thing every week, month, or year. They want to set it and forget it—so they can continue to receive the benefits of the service without having to worry about payments.

Therefore, recurring payments improve the customer experience tenfold, and it would benefit just about every business to have the option available for customers should they want it.

Recurring payments improve customer satisfaction.

How Do You Set Up a Recurring Payment?

To set up a recurring payment, you’ll first need to collect some information from the customer. This includes their name, billing address, and credit card or payment information. The customer also needs to authorize the recurring payments, and you’ll need to have terms and conditions that include a cancellation policy for them to sign.

The automatic billing cycle for the recurring payment can be weekly, monthly, annually, or at another time interval of your choosing. You’ll want to pick something that makes sense for the product or service your client is paying for.

Once you have all the information, you can set up the recurring payment in your payment portal or accounting software.

The simplest approach to taking recurring payments is with an all-in-one payment processor that handles transactions while also providing billing software and security measures to safeguard your consumers' personal information.

Learn About the Most Versatile Payment Hub

How Do Recurring Payments Work?

Whether you want to handle recurring payments with a microprocessor or a B2B invoicing solution, the basic procedures are similar: customers sign up for a subscription or recurrent billing invoice, and you charge them at regular intervals for the products or services you provide. You'll want to save the customer's payment information on file so that the charges can be handled automatically.

How Much Does It Cost to Accept Recurring Payments?

Recurring payment processing costs charged by payment processors are generally a minor percentage of the overall transaction amount, but can be a bit higher than in-person credit card transactions because fraud card-not-present transactions can be higher. However, the cost depends on who you go with. Clarity Payment Hub actually doesn't have any costs associated with processing payments.

Check out Clarity Payment Hub to learn why.

Other payment processors or gateways generally charge a percentage of the transaction amount and some also add monthly fees. Square, for example, charges 3.5 percent plus 15 cents per invoice. On the other hand, Stax and PaySimple charge monthly subscriptions for recurring payments—but they also have lower per-transaction prices than other providers.

There are a variety of other payment processing services or perks that these companies may provide. Clarity's innovative payment hub solution, Square's free business management suite, or PaySimple's event booking capabilities might be the deciding factor.

Finding an innovative payment solution.

Who Uses Recurring Payments?

Many businesses use recurring payments to regularly provide customers with products or services. Oftentimes, online recurring payments occur through a user account or portal with payment information securely stored. Recurring payments are perfect for these types of businesses:

  • Streaming Services: Subscribers can watch a myriad of shows on a given platform. Examples include Netflix, Hulu, and Amazon Prime Video. There are also platforms for music and podcasts, such as Spotify, Audible, and Deezer.
  • eCommerce: You can subscribe to eCommerce platforms like Amazon Prime or Thrive Market to receive membership-only perks and access. Other eCommerce subscription models, like Huel and Amazon Subscribe and Save, are more simplistic, with just regular deliveries of a product of your choosing.
  • Subscription Box Businesses: Subscribers pay for periodic deliveries of boxes with certain products in them. Dollar Shave Club, Birchbox, and Blue Apron are all box businesses.
  • Care and Cleaning Services: Automated repeat payments can be made using single or bulk invoices for lawn care, house cleaning, and childcare.
  • Utilities: Utility bills like electricity, internet services, and cell phone services typically have recurring or automatic payment options.
  • Tutoring or Lessons: Fitness organizations, music instructors, dance studios, and teaching businesses can issue monthly invoices and automatic payments.
  • Clubs or Loyalty Programs: Wine-of-the-month clubs and store loyalty programs may use recurring payments to automate monthly club purchases or fees.
  • Gyms and Fitness Centers: Gyms and fitness centers often require you to have a membership to use the facilities, which means having recurring payments. Though some do allow you to bring in a guest without them also paying for a membership.
  • Software or Online Services: Recurring payments are often used for online services such as advertising, gaming products, software as a service (SaaS), virtual service providers, and some mobile apps.
  • E-Learning Academies: Online courses are made available to subscribers on an ongoing basis and new course content is typically uploaded regularly.
  • Members-Only Blogs: Informational bloggers can make content available to members or subscribers only, so recurring payments give subscribers premium access.
  • Magazines and Publications: The Economist, The New York Times, National Geographic, Forbes, and Scientific American are all magazines that you can sign up to have regular access to. Most typically deliver the printed copies weekly or bi-weekly and give members unlimited access to the online content.

If you're selling anything that auto-renews or requires periodic automatic payments, you'll need a payment processor capable of processing the recurring transactions. The easier it is for clients to pay you, the better.

How Your Business and Customers Benefit from Recurring Payments

Both your business and your customers benefit from recurring payment systems. Let's explore each.

Benefits for Your Customers

Automatic recurring payments are designed to ensure your customers never run out of a product or service. They don't have to worry about manually entering payment information each time or forgetting to make the next purchase. Recurring payments save customers time and hassle, creating a better experience.

In summary, customers get these benefits:

  • Continuous or regular access to products and services.
  • Don’t have to manually enter payment info each time.
  • Don't have to remember to make the next purchase.
  • Saves time and hassle.

Benefits for Your Business

Recurring payments boost customer retention, meaning they'll continue buying from your business for longer. Also, if customers continue getting the access they want to your products or services, they'll be happier overall with your business, which may mean they'll purchase more from you. They may even tell their family and friends about their experience with your business, possibly meaning more potential customers.

Recurring payments also save your company time, because rather than manually creating invoices or calling clients for payment, billing is an automatic process that can save you and your staff hours each billing cycle.

Furthermore, recurring payments offer your business a predictable and constant stream of revenue. With a membership or subscription model, you'll know exactly when payments are coming in ahead of time. You can also more accurately forecast the demand for products and services and stock your inventory accordingly.

To summarize, recurring payments offer these benefits for your business:

  • Boosts customer retention and satisfaction.
  • Brings in more potential customers.
  • Saves your business time and resources.
  • Provides predictable and constant revenue.
  • Allows you to forecast demand more accurately and stock inventory accordingly.

Automatic recurring payments offer many advantages for both businesses and consumers, especially for things customers rely on frequently and that businesses can produce regularly. When setting up recurring payments for your business, it's important to choose a payment service that meets your needs.

Implementing the Best Payments System for Your Business

When it comes to recurring payments or other payment systems, Clarity can help. Our experts can help guide you to the best solution for your business as well as put it into action. If you'd like to find out what recurring payments and the right payment gateway can do for you, get in touch with us today for a free demo.

FAQ

 

Examples include gym membership fees, cell phone bills, magazine subscriptions, and streaming service subscriptions. Recurring payments are also called subscriptions, recurring billing, and automatic payment or auto-pay.

 
  • Step 1: Choose a payment processor that fits your needs and budget.
  • Step 2: Set up a merchant account with your chosen payment processor so you can accept payments from customers.
  • Step 3: Create a payment plan for the amount, frequency, and duration of recurring payments.
  • Step 4: Send your customers payment requests with clear instructions on how to set up automatic billing and a link to the payment page.
  • Step 5: Monitor payments to make sure they are processed correctly and on time. Most payment processors will send notifications when payments are made.
 

Recurring billing can address failed payments by implementing automated retry processes. When a payment fails, the system should automatically attempt the transaction again after a designated interval. If the retry is successful, the payment is processed. If not, the system can notify the customer about the failed transaction, offering them a chance to update their payment information.

Providing clear instructions on how to rectify the issue with automated payments and ensuring open communication can help minimize customer frustration. Additionally, businesses should have a well-defined process for handling repeated failures, including suspending services or subscriptions if necessary, while still maintaining a customer-friendly approach to resolving the situation.

 

To set up recurring payments with your payment processor, you'll need to log in to your account, create a payment plan with the frequency and amount of the payments, customize the plan if necessary, add the customer's payment details, set up notifications, and send the payment request to your customer. The specific steps may vary depending on the payment processor you are using.

 

Accepting recurring payments can be both straightforward and complex, depending on the tools and systems used. Payment gateway APIs for accepting recurring payments handle billing cycles, card updates, and failed payments automatically. Once you get your customers on a payment schedule, these recurring invoices are key to maintaining customer retention.

However, challenges may arise in integrating these APIs into existing systems, ensuring data security, and addressing potential customer concerns. Compliance with payment regulations and handling subscription modifications can also add complexity. While the availability of user-friendly tools to manage recurring payments has made the process easier, a comprehensive understanding of payment workflows and potential issues remains essential for a seamless and reliable recurring payment setup.

 
  1. Subscription billing: This type of recurring payment is typically used for products or services that are delivered on a regular basis, such as magazines, software as a service (SaaS), or gym memberships. The customer is charged a set amount on a regular basis (e.g. monthly or annually) until they cancel their subscription services.
  2. Automatic billing: This type of recurring payment is used for ongoing services or products that are delivered on a regular basis, such as utility bills, rent, or car payments. The customer's payment method is automatically charged on a set schedule.
  3. Installment billing: This type of recurring payment is used when a large purchase is divided into smaller payments over a set period of time. The customer is charged a fixed amount on a regular basis until the purchase is paid in full.
  4. Donations: This type of recurring payment is used for charities and non-profits that rely on regular donations from supporters. Donors can set up a recurring payment to contribute a set amount on a regular basis.
  5. Retainer payments: This type of recurring payment is used in service-based industries, where clients pay a regular fee to retain the services of a professional, such as a lawyer or consultant.
 

Small businesses should choose a reliable payment gateway, clearly communicate billing terms, offer flexible subscription plans, and establish a system for handling failed payments. It's crucial to ensure customer consent, provide easy cancellation options, and prioritize data security when you accept recurring payments.

Additionally, small business owners should make a habit of monitoring payment trends, addressing customer inquiries promptly, and staying updated on relevant regulations are essential for the successful implementation of recurring payments. You don't want to implement a policy of recurring billing that will upset customers, and you certainly don't want your recurring payment model to get you in legal trouble.

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Author
 
Autumn Spriggle is a Content Writer at Clarity Ventures who stays up to date on the latest trends in eCommerce, software development, and related topics to provide readers with the latest and greatest. She strives to help people like you realize the full potential for their eCommerce business.