What is a recurring payment?

Recurring payments, also referred to as recurring billing, automatic payments and subscription payments, are a way for a merchant to automatically charge customers or clients for products or services on a prearranged schedule.

Recurring payments are useful for both the merchant and the customer. For businesses, they help to minimise the risks, associated with account receivables. For customers, they help to save time and make payments quick and simple, because once they’ve granted the merchant permission to take payments on a recurring basis, no further permissions are required.

If you run a business, it’s well worth taking the time to familiarise yourself with recurring payments. They offer merchants several unique benefits that other forms of payment don’t - benefits that may prove useful for you and your customers.

This article will discuss what recurring payments are, how they work and what businesses use them.

A common misconception is that recurring payments are just another term for Direct Debits. In fact, recurring payments and Direct Debit are two different methods of payment.

The main difference between recurring payments and Direct Debit is that recurring payments are taken from a debit or credit card account. Direct Debit payments come from the bank account itself and so take longer to process when compared to recurring billing.

All sorts of different businesses use recurring billing methods. Here, we’ll provide a few examples of such businesses and explain why recurring payments are so useful for them.

Recurring payments are particularly useful for taxes, water bills, energy bills, and other such payments. This is because recurring payments ensure that these bills are paid in a timely fashion. This is beneficial for the customer as well as the utility company since they don’t need to panic about not making important bill payments on time.

Phone providers can also benefit from using recurring payments. With a phone contract, customers make regular monthly payments at a fixed price. Recurring payments ensure that mobile phone providers are paid on time, and customers don’t have to stress about it.

Almost 12 million people in the UK are estimated to have a gym membership. Recurring payments are an effective way to manage these regular monthly payments for access to fitness facilities.

Certain companies sell goods via a subscription. This subscription model has exploded in popularity over the past few years. Exposure from online creators has also helped boost popularity.

These subscription services include everything from box deliveries like HelloFresh and Dollar Shave Club. Recurring payments allow customers to make sure they never have to go without the key products they’ve come to enjoy and rely upon.

It’s not just B2C companies that can benefit from recurring payments. Millions of businesses pay monthly or annual fees for the use of software or digital platforms such as Microsoft, Slack or Zoom.

There are a couple of different ways you can charge recurring payments. These are:

With this type of recurring billing, the customer pays the same agreed-upon amount each time. Gym memberships, content service subscriptions, and magazine subscriptions are good examples of this. Fixed recurring payments, otherwise known as regular payments, are advantageous to companies because they provide a continuous, reliable source of revenue.

The amount of money charged to the customer each time depends on their usage of the goods or services provided with this model of recurring billing. A good example of this is energy bills, which vary from month to month depending on the customer’s consumption.

Variable payments, also called irregular payments, can be split into a couple of different categories. First, there’s usage-based billing. This type of variable payment allows the merchant to create dynamic bills for each payment with fluctuating prices depending on the customer’s usage of the product or service.

The second type of variable payment is called quantity-based billing. This model is used to bill clients for an agreed-upon amount of goods and services.

Aside from ease and convenience, one key benefit of a recurring payment system is how secure it is. This is in part because of the use of tokenization in managing customers’ personal data.

In short, tokenization is a way of protecting sensitive data, like payment information. Sensitive information is replaced with an anonymous placeholder - a token. This token has no intrinsic worth and cannot be exploited since only the original tokenization tool can ‘detokenize’ the information.

Since tokenization is an irreversible process unless you have the original platform used to encrypt the information, this method of data protection is a reliable way of sending, receiving, and storing sensitive details.

The Payment Card Industry Data Security Standard (PCI DSS) is a list of obligations that any company dealing with credit card payments must meet in order to be eligible to work with all the major credit card providers. PCI DSS helps to ensure the safety and security of debit and credit card data.

Since it cuts down on the amount of sensitive material in your data environment, tokenization makes it easier for you to achieve compliance certifications. This does not mean that you have zero responsibilities as a business owner when you use tokenization. It’s still important that you take responsibility for your clients’ data. After all, they have put trust in you, which you shouldn’t take lightly.

That said, tokenization can help you carry that burden.

Now that we’ve explained what the recurring payment system is and what its benefits are, we’ll now go into a bit more detail about the recurring payment process itself.

Recurring payments are automatically withdrawn from the customer’s bank account through their credit or debit card, Direct Debit fund transfer, or another method. When a customer is signing up for a recurring payment plan, they will first have to choose a payment method from a list of options. Each option comes with its own set of terms and conditions that a customer must agree with to move on with the process.

Try to provide as many options for your customer as you can. This doesn’t only benefit your clients; it also benefits you. You are more likely to attract customers if people know you will deliver a certain amount of flexibility.

Once the customer has chosen their preferred payment method, it’s time for them to enter their payment details - details which will be kept safe through tokenization. After the customer has input their card or account details, their payment information is safely stored on the payment gateway page. This is so that future transactions can be made. The customer will be sent an invoice on each billing date. This predetermined schedule would have been agreed upon at the beginning of the process.

Your company will receive payment in much the same way it would with a regular bank card transaction. After the acquiring bank, issuing bank, and bank card network have all given the transaction their stamp of approval, the payment will take place.

At this point, the customer has successfully set up their recurring payment process plan. With each payment, they will be kept up-to-date on the transaction status. If for whatever reason, the funds do not go through, they will be issued instructions to try and resolve the issue.

However, if no issues arise, then it should be smooth sailing from there! The customer will not have to input their credit card details into the system again after that. They will be charged regularly on the agreed-upon date until they decide to cancel their subscription.

Recurring billing is just one of many ways you can encourage sales conversion and customer retention. This is why it’s well worth considering implementing this payment model into your own business.

Here at Ecommpay, we make that easy. We understand the importance of being able to offer your clients convenient and secure payment methods, guaranteeing customer satisfaction. It’s this understanding that makes us the best choice for e-commerce finance management.

Ecommpay allows you to accept payment no matter where you are in the world and accepts transfers from thousands of banks all over Europe. Not only that, but we also offer a wide range of payment methods. to make sure that your customers’ needs are met.

This is only the tip of the iceberg: Ecommpay has so much more to offer. So, if you’re interested in hearing more about our services, including how we can help you implement recurring billing, reach out today!