How to Accept Recurring Payments for Your Business

When you’re operating a business, one of your primary concerns is making sure you can accept payments from your customers. While it’s important to know how to take card payments cheaply and efficiently, you can further streamline your payment processing by accepting recurring payments.

These are payments that are regularly charged to customers on a pre-arranged schedule. Instead of paying manually, customers authorise your business to take funds from their accounts or charge their cards automatically on a certain date.

Read on to learn about how to accept recurring payments, how they work, and more.

How Do Recurring Payments Work For Merchants?

Regardless of whether you’re accepting payments internationally or domestically, recurring payments work in a relatively straightforward way:

• During sign-up or checkout, a customer enters their payment details and consents to recurring payments.
• Your business securely stores this payment information within your payment processing system.
• Your company sets up a payment schedule according to the agreed-upon terms (such as the amount being paid and the payment frequency).
• When the time comes for a payment, this stored payment data is used to process the payment automatically. This all happens behind the scenes without any human intervention, as the payment processor sends a payment request to the customer’s bank/credit card.

Once the transaction is approved by the bank or credit card company, the funds transfer and the customer gets notified of the payment.

How and When You Receive the Payment

Companies can generally receive recurring payments through a credit card, bank account, or even digital wallet. In regards to when recurring payments come through, it depends on the interval that was agreed upon. Monthly recurring payments are common, but they can also happen weekly, quarterly, or annually.

The Cost of Accepting Recurring Payments

The cost varies from one provider to the next. Generally, the transaction fee for recurring payments is the same (or close to the same) as keyed-in payments. Keyed-in payments are transactions where the card details are manually entered by hand. They’re slightly more expensive than online payments.

For example, Square charges 1.4% + 25p for online payments with UK cards and 2.5% for keyed-in transactions and recurring payments.

Be sure to reach out to a provider to learn its charges before agreeing to work with it. In a similar vein, familiarise yourself with the types of credit card processing fees to ensure you know what you’re responsible for paying.

Use cases for recurring payments

Some of the use cases for recurring payments include:

• Subscription services
• Utility bills/rent
• Gym memberships
• Insurance
• Food delivery kits

What You Need to Know Before Accepting Recurring Payments

You should also take the following considerations into account before accepting recurring payments.

Know the Types of Recurring Payments

The two main types of recurring payments are fixed and variable. A fixed recurring payment is when a specific amount is charged each time and it doesn’t change from one payment to the next. An example of this is your rent or fitness membership.

On the other hand, a variable recurring payment is one that changes from one payment to the next, often due to customer usage. Examples of a variable recurring payment include utilities like water or power, or a usage-based phone plan.

In addition to breaking down recurring payments into fixed and variable, you can also categorise them based on payment method. There are recurring:

• Card payments
• Direct debits
• SEPA payments
• ACH payments

Think About How To Deal With Failed Payments

A problem that many businesses run into when accepting recurring payments is failed payments. These payments often fail because of issues like an expired credit card, insufficient funds, or security concerns.

Before getting started you need to know how you’re going to deal with his problem. There are different options including automatically retrying the payment or informing the customer and requesting assistance. You could also pause their subscription/delivery until payment resumes.

Know Your Pricing Model

No matter what kind of business you run, choosing the right pricing model for your recurring payments is crucial to your success. Numerous pricing models work for recurring payments, including:

• Flat-rate pricing: Providing a single fixed price for a specific product or service. Everyone pays the same amount, no matter their usage. For example, two gym-goers each pay the same £50 each month even if one only goes twice a week and the other goes every day.
• Usage-based pricing: Charging customers based on how much they use a product or service. Examples of this include your utilities like power, water, and energy.
• Tiered pricing: Offering customers several product/service options with a different price for each tier, based on what’s included in it. For example, if you sell video editing software, your first pricing tier is normally the cheapest but only includes basic tools.

If the customer upgrades to the next tier, they unlock additional tools and better features, but at a higher price point per month. There’s no “best pricing model,” as it depends on your preferences and the product or service you’re selling.

How to Set Up Recurring Payments

Here’s how to set up your system to accept recurring payments.

Choose the Right Payment Processing Software

The first step is to choose a payment processor that offers recurring payments. There are numerous options, notably Square, Stripe, Clover, and GoCardless.
Each has unique features, costs, and drawbacks, so make sure to do some research. Also, ensure the provider you work with is reliable and takes security seriously.

Keep in mind that not every payment processor supports recurring payments via both credit/debit cards and direct debit. So make sure to choose one that provides the payment options you want to offer.

Set Up the Recurring Payments

Next, you’ll need to set up the system by choosing the different options and pricing for your recurring payments. The exact steps and method for doing this vary depending on which provider you work with.

Generally, you’ll have to choose your:

• Pricing model and prices
• Payment frequency options
• Supported payment methods

If you offer more than one tier or pricing option, you might also need to divide customers properly to ensure they’re being charged the correct amount.

Ensure You’re Compliant

Make sure you’re aware of all the credit card processing laws and regulations you have to abide by. These notably include the PCI DSS (Payment Card Industry Data Security Standard) and PA-DSS (Payment Application Data Security Standard).

Remaining compliant is critical to continue operating, so don’t take it lightly. Also, if you operate globally, be aware of regulations outside of your home country, too.

Communicate Well and Offer Support

It’s important to communicate all terms and conditions with customers and be upfront about the options for changing or cancelling the payments. Being as transparent as possible minimises potential disputes or other issues down the road.

Also, offer ample support to those experiencing trouble. This could take the form of an online help centre, FAQ page, phone assistance, or live chat. Not only does this help improve satisfaction, but excellent customer service makes people more likely to remain customers and recommend your company to others.

Benefits of Accepting Recurring Payments

Some of the advantages of your business accepting recurring payments are:

• Predictable revenue
• A decrease in missed payments
• Less need for paper invoices
• Better cash flow
• Improved customer retention

Drawbacks of Accepting Recurring Payments

However, there are some potential disadvantages that it’s important to be aware of, too. These include:

• Risk of chargebacks
• Higher potential for failed payments
• The possibility of technical issues like customers being charged incorrect amounts