If you’re looking to expand your payment options or offer a subscription service, you may be considering recurring billing. Subscription and membership business models are on the rise. 15% of online shoppers have signed up for at least one membership or subscription service, and this number is only expected to grow. These already staggering numbers show how automatic payments and recurring billing can grow a business. However, this success is not limited to digital subscriptions. You can use recurring charges creatively no matter what your business model looks like. Read on to find out what recurring payment means and how to utilize auto billpay for your business.
What is a Recurring Payment?
A recurring payment is one that comes periodically from a customer to your business on a fixed schedule. Again, while subscriptions are one example of recurring payments, they are not the only way to use recurring billing in your business.
These days, businesses are using recurring billing as one of the many payment options they offer. Since automatic payments are on the rise, many business owners are turning to this method to satisfy their customers’ needs.
What does recurring payment mean?
So, what does recurring payment mean? As we touched on, recurring payment, at its simplest, means repeated payments.
This definition is simple and allows for flexibility. Examples of how recurring billing can vary include the number of payments made, the amount of each payment, and the period of time between charges (i.e. monthly, yearly, weekly, etc.).
How do Automatic Payments Work?
How you choose to structure your recurring charges is up to you. The important thing to remember is that once the customer gives permission, the agreed-upon amount will be automatically and regularly deducted until the end of the agreed-upon term, or until the customer terminates the agreement. Whichever comes first.
The payment automatically comes from either your customer’s credit or debit card or their bank account via Direct debit or ACH. You will need a credit card processor to accept recurring payments.
Here’s how the process flow looks:
- The customer agrees to let you charge them for a product or service on a recurring basis.
- Your customer then accepts the terms and conditions (which will lay out things like the cancellation policy, amount charged, and the product or service they can expect in return).
- The customer then makes an initial payment using the card or bank account they would like on file.
- Once they enter their payment details, your credit card processor securely stores them.
- You set a schedule for the recurring payment and submit the transaction.
- The first payment is processed and either approved or denied.
- Subsequent payments will happen automatically.
What are the Types of Recurring Billing?
There are a few types of automatic payments and which you choose will depend on your business model. Let’s explore fixed recurring billing and variable reoccurring charges next:
Fixed recurring billing
Fixed reoccurring charges are the ones you’re likely most familiar with. This is when a business charges a customer the same amount at every interval. This is what Netflix, a gym membership, and cable companies use and the automatic payment occurs on a monthly basis.
Variable recurring billing
Variable payments are an irregular payment structure. The amount billed each time is not a set amount, and instead varies (most commonly by the amount the customer used a product or service). Utility bills, credit card processing fees, etc. use the varied recurring billing structure.
What are the Benefits of Automated Bill Payment?
As we briefly touched on, many businesses have been built entirely (and flourished) on an auto billpay/recurring payments model. Let’s explore four major benefits for your business that are worth considering.
Convenience
There’s no denying that the convenience of recurring billing is one of the top benefits. Once you have stored your customer’s details for payment you will not need to make any changes until their card expires or the relationship/need for billing changes. This makes getting paid easier, quicker, and relatively frictionless.
Consistent revenue
Another incredible benefit to your business for utilizing recurring billing is the consistent revenue. By setting up a membership or subscription arm of your business, you create customers that you can pretty much rely on to bring in a consistent amount of revenue each month. It also reduces the number of payments that arrive late.
Late payments can create serious cash flow issues for small businesses, so the recurring charge it’s a great way to ensure that revenue is received consistently and on time.
Fraud protection
By using an integrated payment system to process recurring billing, the data is encrypted and secured. The setup should automatically comply with PCI DSS (payment card industry data security standards). In addition to the built-in fraud security, this means that the customer will not need to process a new payment method each time, increasing the trust between you and your customer.
Fraudsters are also much less likely to agree to a subscription or recurring payments billing model because fraudulent cards only tend to work on a temporary basis (i.e. until they are shut off). This naturally increases the integrity of the relationship between you and your customer.
Better customer relationships
As we briefly touched on, recurring charges can also improve your customer relationships. This is because it has created an environment for your relationship that is not dependent on on-time payments, new payment methods, etc. (less time spent chasing payments from your customers). Instead, your customer only has to provide billing details once and the rest takes care of itself.
They don’t need to remind themselves to pay the bill, and you don’t need to remind them either. This continues to build trust in your business as your customer knows they can rely on receiving the product or service as agreed without the worry of interruption.
Utilize Recurring Payments to Enhance your Business
There are endlessly creative ways to utilize automatic payment/auto billpay in your business. Here are some ideas for creative uses of automatic payments:
Create a membership program
Whether you have an eCommerce business, brick-and-mortar, service-based business, etc. you can likely create value for your customers and yourself through a membership program. You can provide access to exclusive content, offer monthly exclusive discounts to members, or just about anything else you can think of.
Wineries create memberships that offer exclusive discounts, member-only events, and mail home bottles of wine for members. Yoga studios offer product discounts, unlimited sessions, and exclusive events to members of their studios.
Anything you can offer on a recurring basis that feels exclusive and like a value-add is worthy of a membership program.
Create a subscription
The subscription economy nearly doubles every single year. You can see the impact almost anywhere you look.
Coffee shops have created coffee subscriptions allowing their customers to receive curated coffee selections on a monthly basis. Hair salons have used memberships and automated bill payments to sell consumable hair products. E-commerce businesses have created memberships that send customers an automated bundled package of goods each month.
The only limit to your subscription options is your creativity.
Split payments
Services like AfterPay have grown in popularity and shown the power of split payments in your auto billpay strategy.
If your product or service is expensive, your customers may appreciate the option to split payments over a longer period of time. This can encourage customers to make bigger purchases at once, make purchases more frequently, or to ultimately make a purchase they otherwise wouldn’t have.
Do you feel ready to enhance your business with auto billpay? With the recurring payment meaning and benefits fresh on your mind, we hope that you feel empowered to give automated bill payments a try in your business.
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