Recurring Payments: Predictable, Easy Cash Flow

Recurring payments are pre-authorized payments made to a company in exchange for products or services. The company automatically processes payments from a customer’s saved payment information (typically a credit or debit card, though ACH deposits may also apply). Often, recurring payments happen monthly, but you can use any schedule you want—daily, weekly, quarterly, and even annually.

Recurring payments take a lot of the hassle and time out of collecting money for your business. Rather than relying on the customer to proactively make the payment each cycle, your system can automatically process the payment with the customer’s saved information.

Looking for something else? Read our 4 Easy Ways to Accept Credit Card Payments.

How Recurring Payments Work

To initiate authorization for recurring payments, businesses must provide the customer with a way to share their credit card or bank account information. This authorization is typically a physical or digital form that collects information about the customer and their associated financial account. The form also explicitly grants the business permission to process recurring charges and store the customer’s information.

Each time a recurring payment is requested, the merchant’s payment processor kicks off the transaction. The processor speaks to the customer’s associated financial institution and transmits the funds into the business’s associated merchant account. The funds are typically made available to the business within a few days.

One advantage to recurring payments is this process is automatic, so you don’t have to spend time manually processing regular payments. Instead, you can set up your tech stack with systems that will automatically go out and get your money for you.

Should You Use Recurring Payments?

Recurring payments aren’t a fit for every type of business. But, there are some scenarios where it’d make sense to offer recurring payments to your customers, including for memberships or subscriptions, corporate billing, to reduce late payments, or to improve the customer experience.

Memberships and Subscriptions

Perhaps the most obvious context for recurring payments is a membership or subscription-based model. According to one McKinsey & Company analysis, the subscription market exploded over recent years, growing by more than 100% in 2013 through 2018. It also found that more than 15% of consumers have signed up for product-based subscription services and nearly half have subscriptions for media-streaming services.

Memberships and subscriptions can take many forms. You might think of the traditional monthly publication model with magazines and more innovative businesses like subscription boxes, streaming services, and even membership communities continue to crop up. These are all businesses that are perfectly suited for recurring payments.

Business and Corporate Billing

For B2B payments, there are many unique conveniences you can offer to your customers. Many times, more than one individual needs to access your products or services. And when employee turnover happens, recurring payments can mitigate any hiccups along the way.

Automated recurring billing makes it easier for businesses to maintain consistent access to the products and services they need and manage ongoing bookkeeping. For more guidance, check out our guide to the best B2B payment solutions for small businesses.

Late Payments

If you’re a small business challenged with lots of late or missed payments from your customers, you may want to explore a recurring payment solution. This is a common dilemma, even for B2B businesses. While the average supplier payment terms are 32 days in the US, the average amount of time it takes to actually get paid is closer to double that at 55 days, per one Atradius report.

Automated recurring payments mean you don’t have to wait for the customer to pay because they’ve already offered the one-time authorization. Setting up for recurring payments also means you’ll spend less time waiting on your money or chasing payments and more time focusing on your business.

Improved Customer Experience

People are busy, so any convenience you can offer is typically welcomed. Recurring payments are a convenient way for some customers to pay for products and services because it takes one step out of their shopping process. This reduces friction and makes it easier for them to convert.

Suppose you have a group of loyal customers who consistently return for future purchases. In that case, you can offer to save their payment information and process the transaction according to your chosen payment schedule. After each period, you can tally up the total owed and run the payment with their saved credit card or bank account.

For consumer products purchased at regular intervals, such as razors or dog food, using a recurring payment model is convenient for customers. Your product will show up at their door right when they need it, without them having to remember to place an order when they are running low.

Bottom Line

Recurring payments offer great convenience for customers and small businesses alike. They eliminate a step of the purchase process, making it easier for shoppers to complete their purchase and receive goods and services. At the same time, merchants have reliable and predictable income without the need to chase late payments. Many of the best merchant services for small businesses have built-in features for setting up recurring billing.

Square is our recommended solution for individuals and new businesses looking to accept recurring payments. Its free app, automated payment reminders, and flexible billing make it an easy solution for many business types. Visit Square to create a free account.

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