From magazines and utilities to software and digital services, the recurring payment is becoming more popular than ever. The subscription model’s popularity stems from the consistent cash flow and other benefits that come with recurring payments.
Recurring payments are gaining popularity around the world because they benefit both businesses and customers. On the one hand, business owners get paid on time and save money on administrative costs associated with payment delays. Customers, on the other hand, do not need to open and act on their invoices every billing cycle. Once a recurring payment system is in place, funds are automatically debited from customers’ accounts on time, saving them from late payment penalties.
The recurring payment system is more than just automation. This guide will explain recurring payments’ meaning, how recurring payments work and how they can help your business.
What are Recurring Merchant Transactions or Payments?
It is easiest to understand the recurring transaction’s meaning by remembering that it is a payment model where customers authorise merchants to withdraw funds from their accounts on an ongoing basis to provide goods and services to them.
Once the customer grants permission, the amount will be deducted automatically at predetermined intervals until the customer withdraws their permission or the subscription expires.
How do Recurring Payments work?
Recurring payments are automatically deducted from customers’ bank accounts via Credit/ Debit cards or other methods. A merchant account and a payment service provider are required for the business to accept these payments.
A merchant account is a type of bank account that enables businesses to accept payments from the accounts of their customers. The amount debited from the customer’s account is first deposited in the merchant account before being transferred to the business’s bank account.
The payment service provider manages all aspects of payment processing, from collecting recurring payments on merchants’ behalf and securely processing them to depositing the funds in the businesses’ bank accounts.
Though different recurring payment processors have different workflows, these steps are typically followed.
- From the list of options, the customer selects the recurring payment mode.
- The customer agrees to the terms and conditions of the recurring payment option.
- To make an initial payment, the customer enters their card information, which is securely saved on the payment gateway page for future transactions.
- On each billing date, an invoice will be sent to the customer following the predetermined schedule.
- The recurring payment occurs and funds are transferred to the merchant account, just like a normal card transaction, once the acquiring bank, card network, and issuing bank approve the transaction.
- The customer will be notified of the transaction status each time the recurring payment occurs according to the predetermined billing schedule (and follow-up instructions if the payment failed).
- The customer will not have to enter the payment information again. Until the subscription is cancelled, the subscription fee will be charged.
Features of Recurring Payments
1. Payment methods
The customer has several options for determining how the payment will be deducted regularly. Customers can pay using their bank accounts, debit cards, credit cards, or UPI. Flexible payment options such as EMIs are also available for certain high-value transactions.
2. A fixed or variable amount
Many subscription models require a set amount to be paid at the end of each payment cycle. Payments for gym memberships, subscriptions to newspapers or magazines, payments for video streaming services, and so on are examples of this.
Whereas some recurring payments have different amounts for each payment cycle. Utility bills such as electricity, gas, or telephone services are examples.
3. Payment cycle
Depending on the service or product used, the billing cycle may differ. The majority of subscription models are billed every month. However, quarterly, half-yearly, or even yearly billings are not uncommon.
4. Additions or part-removals
Recurring payments enable the user to add or remove portions of the subscription as needed.
A critical feature of recurring payments is the ability for the customer to cancel the subscription at any time.
The user may wish to restart the service after it has been cancelled or the term has expired. This feature is readily available in recurring payment plans.
Types of Recurring Payments
Recurring payments are classified into two types:
1. Recurring or regular payments
Customers who make fixed or regular payments are charged the same amount each time. Subscriptions to magazines and gym memberships are examples of regular recurring payments.
2. Irregular or variable payments
Depending on the customer’s usage, variable or irregular recurring payments are charged at different rates. Electricity and other utility bills, for example, vary month to month based on consumption.
Benefits of Recurring Payments
Recurring payments provide several compelling advantages:
1. Cut down on late payments and collection time
Late payments are costly to businesses because they harm both revenue and customer relationships. With recurring payments, a business can configure the system once and rest assured that payment collection will be automated based on the predefined schedule. Your company will spend less time chasing down customers for payments and having awkward conversations about late payments, giving you more time to focus on other important business tasks.
2. Reduce your effort
Recurring payments that are automated reduce the cost and effort associated with manual invoicing and payment processing. All you have to do is set up the initial payment plan once, and the software will handle payment processing for you. You will only need to intervene if changes need to be made to the payment method or charge amount.
3. Enhance customer relations
Customers prefer recurring payments because they only have to enter their billing information once. Recurring payments take over from there, deducting funds from their bank accounts on the specified billing dates. Customers do not need to set up payment reminders or enter payment information every billing cycle. When done correctly, recurring payments can foster a sense of goodwill between the company and its customers, ensuring a healthy customer relationship.
4. Protect yourself from fraud
The payment information provided by customers is securely stored in the servers of the integrated payment gateways that process recurring payments. They protect against fraud using methods such as tokenisation and best practices such as Payment Card Industry Data Security Standard Compliance (PCI-DSS). These fraud detection and prevention technologies not only protect funds from fraudulent motives but also reinforce the business’s trustworthiness among customers and save resources that would otherwise be spent on detecting and resolving fraudulent transactions.
How can Recurring Payments help Businesses?
Recurring payments benefit business owners because they provide a consistent source of income. Due to the longevity of the customer’s lifetime cycle, the business does not have to incur additional costs for customer retention once a customer is onboarded. Improved customer retention benefits the company financially and helps it gain market share.
Business owners can also project their company’s viability because forecasting future income has become relatively simple. An accurate prediction allows the company to properly plan for its future operations.
Recurring and regular business can transform the way your company operates. It could assist you in meeting consistent operating expenses while also maintaining adequate cash flow for contingencies. Reduced costs and increased cash flows could propel your company to new heights. However, a reliable payment partner is required for efficient payment acceptance in your business.
Subscription Paisa’s recurring payment model allows payers to make recurring subscription payments through e-NACH/e-mandates for more than 50 banks to merchants. The exclusive features of Subscription Paisa allow businesses to process smart and easy recurring payments.
Click here to know more about the benefits and features of SabPaisa.
1. What do you mean by recurring payments?
Ans: A subscription-based business receives recurring or periodic payments from customers in exchange for continuously providing services.
2. Are recurring payments beneficial to business owners?
Ans: Recurring payments benefit business owners because they ensure a consistent income flow, which is essential for managing business growth in competitive industries.
3. Can customers cancel their recurring payment subscription?
Ans: Yes, it is possible for customers to cancel their recurring payment subscription, although the terms and conditions differ from service to service.
4. What are the types of recurring payments?
Ans: There are two types of recurring payments, namely recurring or regular payments and irregular or variable payments.
5. What all products and services offer recurring payments?
Ans: Many products and services utilise the recurring payment model, such as magazines, newspapers, gym memberships, library memberships, electricity, water, and other utility bills.