What Are the Benefits of Recurring Payment?
Many companies offer subscription-based services with recurring payments. These payments for recurring billing are equally beneficial for the business and the customer. Businesses can avail of the one-time payment smoothly for the agreeable time period. On the other hand, customers get painless service while allowing companies to charge for the service they take.
A recent survey has revealed data on the subscription business. According to it, there is a growth of 4.5 times in the subscription business as compared to 500 top companies. From this data, we can justify the importance of recurring payments.
Let’s uncover more information on recurring payments and understand it well.
What Are Recurring Payments?
Recurring payments also called subscription payments are a kind of payment that consumers pay at a fixed time for their purchased service. There is an automatic deduction for the payment. Both seller and customer agree on this kind of transaction.
Setting up a recurring payment is quite simple. You need to sketch out a subscription plan and enable recurring payments. Some softwares that offers features like a free receipt maker or online invoice generator offer an option of recurring payment.
Types of recurring payments
Recurring payments are of two types as explained below –
Variable or Irregular Recurring Payments
Due to flexible changes, the payment amount varies according to service consumption. Electricity bills are the best example of this. However, payment always occurs at fixed intervals.
Regular or Fixed Recurring Payments
In this kind of recurring payment, customers need to give a fixed amount of payment for a defined period. For example, a subscription of online tuition.
How Recurring Payment Works?
A proper process is followed for the recurring payment. Payment gateway has a big role for making it happen. Typically, the workflow is as follow –
Authorizing Customer
Initially, an agreement is established when the customer signs up and fills in the details of a bank account or credit card. This agreement is for establishing authorized processes between the service provider and the customer. It covers what type of service and for which period it will be given to the customer.
Storage of Payment Information
Payment gateways store the payment information on their servers. These gateways are highly compliant with Payment Card Industry Data Security Standards.
Scheduling Payment
Based on the frequency of recurring payments, businesses establish a payment schedule. This can be weekly. Monthly or even annually.
Transaction process
The payment gateway will initiate the payment process on the scheduled date. There is no action required from the customer’s side. The gateway sends the payment request to the client’s bank to make the transaction.
Confirmation
When a transaction is approved, the funds are debited from the client’s account and credited to the business account. The confirmation notification is also sent to the customer.
In case of failed payment, a notification is sent to the client, and the system handles the same. Additionally, there is a proper strategy for recurring payments.
What Are the Benefits of Recurring Payments?
Merits of recurring payments are applicable to businesses and customers. We here explain its effect on both.
Benefits For Business
Enhance Customer Retention
Recurring payments are always on a subscription basis. At a fixed time interval, the payment is automatically transferred to the business from the customer’s wallet. In this way, it helps to bind customers for a long time. In case of failed payment, the system handles the scenario.
Superior To Manual Process
Recurring billing is an automatic strategy that offers a smart approach to traditional billing. Professionals can save time and focus on other crucial tasks. Also, it offers an error-free concept which is often a missing factor in the manual approach.
Improve Cash Flow
Professionals can grab proper cash flow for their business. The chances of fluctuation are less and there is a steady income for the business. This also increases the chances of on-time wages for the workers.
Increase Revenue
There is no direct positive impact of recurring payments on revenue. Even a company can generate satisfactory cash flow with no subscription service. But companies can hike average order values by adopting recurring payment models. This ultimately affects revenue.
Easy Payment Tracking
One of the benefits of recurring payments is easy tracking. Businesses and consumers can track payments in one place Due to automation, there is a well-organized approach that makes tracking simple.
Protect from Fraud
Whenever a customer makes an online transaction, the payment gateway stores the details on the server. Additionally, it uses technologies like tokenization and practices like compliance with the Payment Card Industry Data Security Standard (PCI DSS). Thus, professionals gain the trust of their customers through a proper fraud-detecting approach.
Benefits For Customers
Cut Down Late Payment Chances
Consider a scenario where you forget the last date and make a payment. This is the usual case in manual processes but recurring payments eliminate this. Due to automation, the payment gets automatically done on a fixed date. Consumers have no headaches making payments.
Highly Convenient
It’s convenient for the customers thanks to its automation factor. Consumers do not need to worry about making the payment through a long and manual process. Instead of it, the payment automatically gets transferred to the business account from the customer’s account.
Highly Flexible
Customers can upgrade their subscription plan at any time. Similarly, they can cancel or pause the service at any time. Overall, this is a kind of flexibility for the convenience of the user. This kind of convenience is lacking in the traditional method of payment.
Predictability
It is for sure that there will be a monthly deduction of the amount when a person buys a subscription plan. Consumers can easily predict their financial plan. Because of auto deduction in the subscription plan, it is very simple for them to predict the financial expenses.
Cost Effective
A subscription plan is always reasonable as compared to one-time payment. In most of the cases, businesses offer discounts in their subscription plan. Thus, customers have a great chance of saving money.
Which Businesses Can Adopt Recurring Payment Strategy?
Recurring payments do not apply to every type of business. Whether you need to adopt or not, you must justify the following points.
Businesses That Offer Utility
Organizations that offer water, electricity, or gas supply need to choose recurring payments. This makes the payment flow quite smooth and ensures no bill remains unpaid.
Subscription-Based Service
Many businesses offer subscription plans to the customer. For example, companies that provide streaming media, online classes, and SaaS products.
Offering Membership
Some businesses like gyms and yoga studios, provide membership plans for their customers. There is proper cash flow in these professions by adopting recurring payments.
Conclusion
Recurring payments work wonders for the company and the customers. Both parties can enjoy a fruitful outcome by adopting it. Adopting recurring payments is highly beneficial for any business that offers the service for a fixed amount of payment at regular intervals. This strengthens the customer relationship and also improves cash flow.
