Use Recurring Payments to Predict Your Revenue Stream
As subscription models become more popular, recurring payments are as well. A recurring payment is a regular payment for a product or service. They benefit your customers by improving their experience and are great for your company by providing a steady revenue source.
What Is Recurring Payment Processing?
Recurring payments are automatic charges for a product or service used regularly. The customer agrees to have their card charged automatically according to the merchant’s payment schedule. Charges are made weekly, monthly, annually or whenever the customer’s subscription needs to be renewed.
Recurring charges are divided into two types based on the amount owed:
- Fixed recurring payment: The customer is charged the same amount every pay period, regardless of usage.
- Variable recurring payment: The customer is charged a different amount every pay period based on usage.
A company needs a payment service provider and merchant account to accept and process these payments.
Recurring payment solutions incur some costs. A recurring payment system charges a flat monthly fee and a percentage of your transaction volume. Costs will also vary based on the capabilities you need and the credit card issuer.
How Do Recurring Payments Work?
A recurring payment model takes several steps to set up:
- The customer enrolls in a recurring payment option: The customer signs up for a subscription or opts to have their credit card charged automatically based on the payment schedule.
- The customer chooses a payment method: The customer decides which payment mode to use for their recurring payment, such as a credit or debit card.
- The customer agrees to the terms and conditions: Recurring payment systems must be approved by the customer. When customers accept the terms and conditions, they consent to the system storing their card details and charging their account every pay period.
- The payment details are stored: The customer provides their card details, which the payment gateway stores for further transactions.
- The payment is processed: The customer’s credit card network and issuing bank and the merchant’s acquiring bank approve the transaction, and money transfers from the customer to the merchant account.
- The customer’s card is charged every period: When the next payment is due, the customer will be charged the amount owed based on the card details on file. The customer will get an invoice beforehand and a payment receipt once the transaction is complete.
Once this process is complete, your business can accept recurring payments from customers and receive payments within a few business days. The payment process repeats automatically every billing cycle, only stopping if the customer stops recurring payments or ends their subscription, or if the payment details are incorrect.
Businesses That Use Recurring Payments
Recurring payments used to be exclusive to a small sector of products and services. Now, many businesses are implementing a subscription model and allowing customers to make recurring payments. Any company offering products or services that customers frequently need can implement a subscription service.
Invoice-based recurring payment systems are ideal for:
- Subscription services and club sales: Recurring payments can pay the service fee every period, so the customer can keep participating in the service. Examples include streaming services and magazines.
- Membership services: Companies that run invoices for services can automate payments every billing cycle. Examples of these businesses include fitness clubs, tutoring companies and dance studios.
- Service providers: Service providers are businesses that service a customer at regular intervals and charge based on time. Examples include child care, lawn care and house cleaning.
- Government and municipal services: Government organizations can take advantage of recurring payments to ensure citizens pay their taxes on time.
- Services with payment plans: Companies that charge a high-cost service often allow customers to make scheduled payments over months. These smaller payments add up to the total service cost. Recurring payments can help customers make their monthly payments.
Recurring payments for online businesses can be used for:
- Online services: Many online services charge their customers for access to their products. Examples include mobile apps, virtual service providers and Software as a Service (SaaS).
- Subscription boxes: Subscription box companies sell subscriptions to their packages online. Subscribers enroll in the service and can be charged every period before the box is shipped to them.
- Restricted content services: Some companies make special content for paid subscribers only. Recurring membership payments can help ensure those who pay for the content can access it.
- Online learning: Online schools can charge their students every payment period for access to courses and instructional materials.
Benefits of Accepting Recurring Payments
Businesses that implement a recurring payment solution experience several benefits. They can:
- Have a predictable revenue stream: Subscription service payments make it easy to get predictable and stable revenue every pay period. With ad-hoc billing, your revenue is inconsistent since some customers may neglect paying their bill.
- Offer several payment options: Your customers can choose from various payment methods and schedules that work for them. Being this flexible without recurring payments is more difficult to manage.
- Simplify their workflow: Recurring payments automatically process invoices and payments, so your team will have less work to do every billing cycle.
- Enhance the customer experience: Recurring payments are convenient for your customers. They can set up their payment details and let the service charges pay for themselves without doing anything manually. By paying consistently, your customers will enjoy continuous service.
- Increase customer retention: Recurring payments encourage customers to continue to use your product or service, improving customer loyalty.
- Reduce the risk of fraud: Since the payment gateway stores the customer’s payment details, the risk of fraud is reduced.
How CSG Forte Helps With Recurring Payment Solutions
A payment gateway is one of many ways to process a recurring payment. Payment gateways are part of the recurring payment process by storing the customer’s card details for future charges. Companies can work with a payment gateway to support transactions.
Accept and process recurring payments with the payments platform by CSG Forte. With this platform, you can schedule recurring payments with your customers and manage these payments through account verification, returns management and more. You’ll also benefit from high gateway availability and minimal downtime with our enhanced payment gateway performance.