If you run a business, you should take the time to familiarize yourself with recurring payment. They offer merchants several unique benefits that other forms of payment don’t—benefits that may prove useful for you and your company.
This article will discuss what recurring payment is. It will also explain how recurring payments work, what businesses use them and how you can easily manage recurring payments with ECOMMPAY’s intuitive finance management tools.
Recurring Payments in a Nutshell
So, what are recurring payments or CPAs (continuous payment authorities)? Put simply, recurring billing is a way for a merchant to automatically charge clients for products or services on a prearranged schedule.
Recurring payments are useful for both the merchant and the customer. In the case of the former, they help to minimize the risk of account receivables. They’re beneficial to customers because they help to save time and make payments quick and simple.
How are Recurring Payments Different from Direct Debit?
The main difference between recurring payments and direct debit is 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.
What Sorts of Businesses Use Recurring Payments?
Because of their utility, a variety 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.
Utility Companies
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.
Cell Phone Providers
Cell 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 cell phone providers are paid on time, and customers don’t have to stress about it, meaning everyone’s happy!
Content Providers
The term “content providers” is fairly broad, but it simply refers to any company that creates and offers content, whether that’s video games, news publications, or other forms of entertainment like movies and television programs. Recurring payments allow for a seamless experience for both the company and the consumer.
Subscription Services
Certain companies sell goods via a subscription. This subscription model has exploded in popularity over the past few years, in large part due to the impact of COVID-19 on e-commerce. 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.
Fixed Recurring Payments vs. Variable Recurring Payments
There are a couple of different ways you can charge recurring payments. These are:
- Fixed recurring payments. 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.
- Variable payments. The amount of money charged to the customer each time depends on their usage of the goods or service 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.
Read on to find out a bit more about these different types of recurring payments.
Regular Recurring Payments
Fixed recurring payments, otherwise known as regular payments, are advantageous to companies because they provide a continuous, reliable source of revenue. This model of recurring billing is similar to subscription billing, but there is a key difference. Subscription billing usually offers different tiers of pricing. This is not required for regular recurring payments.
Variable Payments
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.
Payment Tokenization
Another 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. If you haven’t heard of tokenization before, don’t worry, the concept is pretty simple.
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 considered by many people to be a reliable way of sending, receiving, and storing sensitive details.
Why Is Payment Tokenization So Useful?
It seems that more and more often, we hear reports of companies who’ve had their data leaked. These types of catastrophic cybersecurity mishaps are not only damaging to a business’s reputation but also extremely stressful for the customer to deal with. In a worst-case scenario, a customer might find themselves being scammed out of money and will have to scramble to get back what they can.
Tokenization solutions are still relatively new on the scene, and not many people know what it is or how it works. In fact, lots of people haven’t even heard of it! But tokenization can make sure all transactions through your payment system are 100% secure, meaning your sensitive data—and that of your customers—is kept safe from prying eyes.
What Is the Impact of Tokenization on PCI DSS Certification?
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 client’s data. After all, they have put trust in you, which you shouldn’t take lightly.
That said, tokenization can help you carry that burden.
The Recurring Payment Process
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.
Selecting a Method of Payment
Recurring payments are automatically withdrawn from the customer’s bank account through their credit or debit card, direct debit fund transfer, or some other 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.
Entering Payment Details
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.
Receiving Payment
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.
The Recurring Payment Process Continues
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.
Managing Automated Recurring Payments with ECOMMPAY
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!
