In the modern world, businesses should consider recurring credit card processing payments as an option.
The growing popularity of subscription services and payment plans, expectations for hassle-free payment processing, and the drive to minimize manual processes are all making automatic payments a more attractive model to startups and established companies alike.
With the subscription economy projected to reach $1.5 trillion by 2025, businesses are moving beyond simple billing to full revenue lifecycle management.
But how do you know whether your business will benefit from recurring billing, and how can you set up a recurring payment system successfully?
Here are the advantages of adding a recurring billing system to your business and how you can launch your own offering with minimal stress.
What are recurring payments?
A recurring payment, also known as recurring billing or automatic payment, is a billing system where a customer authorizes a product or service provider to charge their credit card with repeated payments on a predetermined schedule. Automatic payments can also be made via ACH debit payments into a merchant’s account.
To activate recurring payments, the customer must agree to share their payment information with the merchant’s payment processor and authorize both initial and future charges on the payment plan (i.e. bi-weekly, monthly, or annually). Recurring payments will usually continue indefinitely until cancellation or expiration; however, with Stax’s automatic card updater, a card expiration no longer stops the revenue stream, as new details are fetched automatically.
There are two different kinds of recurring payments: fixed payments and variable payments. Fixed payments mean that exactly the same amount of money is charged to a customer’s account with each cycle, while variable payments may fluctuate from payment to payment depending on a customer’s use of a product or service, such as utility bills. This is known as consumption-based billing, where customers are billed based on metered usage (API calls, data storage, etc.); this is a staple for SaaS and modern utilities.
What is the difference between a recurring charge and a one-time charge?
A one-time charge is a single transaction where a customer is paying for a product or service. Unlike recurring payments, no ongoing payment service is authorized between the buyer and seller. While one-time charges are single events, many merchants now use “card-on-file” tokens to enable faster subsequent one-time checkouts.
One-time charges make the most sense when consumers are not making regular payments. Unless customers have a reason to make payments automatically, there’s little advantage to offering recurring billing as a payment method.
But if your business is offering products or services on a recurring basis, there are many benefits to making an automatic payment option available to your customers. Although not all customers trust handing over their credit or debit card information to ecommerce merchants, having it as an option can make online payment processing much easier for small businesses to manage.
What are the benefits of offering recurring credit card processing payments?
Let’s explore some of the advantages you can gain from implementing recurring credit card processing.
Increased convenience for customers
Customer loyalty isn’t just about pricing. The “set and forget” nature of automatic billing means that consumers don’t need to think about what payments are due and when, which adds friction to the customer experience.
Maximizing customer convenience helps to improve the brand experience and gives people more reasons to stick with you instead of switching to a competitor. When 74% of consumers are likely or somewhat likely to buy based on experiences alone, recurring billing can make a huge difference to overall customer retention.
Adding new product or service offerings
Offering automatic payments isn’t just about adding another payment method. Recurring billing helps brands to pioneer entirely new product or service offerings that are highly marketable in today’s landscape.
For example, razor blades are a generic consumer product that can be bought everywhere from grocery stores to Amazon. There’s little competitive advantage to be had for sellers — unless the value proposition is changed entirely. With subscription logic, any product can be optimized with recurring billing, adding value and convenience to the delivery of simple products or services. Businesses utilize subscriber lifecycle management, which allow customers to pause, skip, and adjust the frequency of their subscription according to their personal needs.
So, products as simple as a razor can become a subscription-based revenue generator.
Minimizing time and effort with payment processing
Late payments, or payments that are missed entirely, are damaging to a business’s efforts to build a steady, reliable cash flow. It also doesn’t spell good news for customer relationships; if a client is continually missing or delaying payments, you may have to consider cutting them loose.
As a business owner, spending time chasing down customers with invoices or late payment interest isn’t just unpleasant; it also takes focus away from managing other areas of your business, which can mean missed growth opportunities to expand your venture.
By using a recurring billing system to process payments and store credit card information, you can avoid manual invoicing tasks and free up more time to spend on other matters.
Defend against ecommerce fraud
Payment fraud is a widespread and escalating problem within ecommerce as the number of “card-not-present” (CNP) transactions continues to grow. A lot of this cost to merchants occurs due to chargeback fraud, where refunds are requested from card networks for dishonest reasons.
Recurring payment processors and POS solutions are PCI-compliant to ensure safe transactions and the storage of sensitive information, ensuring that merchants can better protect themselves and their customers against fraudulent behaviors. Moreover, modern recurring platforms use tokenization and 3D Secure 2.0 to drastically reduce the risk of card-not-present fraud and unauthorized chargebacks.
Businesses that would benefit most from recurring payments
Recurring payment processing offers a lot of advantages for the right kind of business. Here are the types of businesses that would benefit most from it.
Subscription services. Subscription services typically charge customers at regular intervals for a certain product or service, such as video streaming or a box of curated products in a specific consumer category (like pre-made meals). This makes recurring credit card processing a great way to streamline the customer experience and minimize churn.
Membership models. Professional services such as gyms, co-working spaces, and social clubs benefit from using an automatic payment structure because they’re normally billing customers the same fee at regular intervals — e.g. weekly or monthly. Because credit cards are kept on file along with an authorization form, this enables ancillary revenue streams or “add-on” charges, where incidental purchases are batched and billed alongside the primary monthly membership fee.
SaaS companies. The SaaS or “software-as-a-service” business model relies heavily on customers choosing to sign up for long terms of use. Recurring billing offers businesses the option of giving customers a discount on their subscription in exchange for signing up for a longer time period, thereby creating more reliable revenue for the business. Moreover, recurring billing enables seamless upgrades and downgrades, allowing SaaS companies to scale revenue as their customers grow without requiring a new checkout process.
Financial services. Personal financial firms who manage IRAs, student loans, or insurance policies can save themselves a lot of administration costs by offering customers a recurring billing option so they don’t have to remember to make payments on time.
Steps to help you implement recurring payments successfully
Ready to implement recurring credit card processing? Here are the steps you can take to do so.
1. Select a recurring payment processor
To accept recurring payments from your customers, you need to choose a payment gateway or merchant account that offers this option.
Here at Stax, we offer Stax Bill, an all-in-one subscription and recurring billing solution that provides a customer-facing portal for your customers to manage their payment method and billing schedule, which frees up time for you to focus on non-accounting responsibilities. It acts as your financial sub-ledger, integrating directly with your ERP or accounting software to eliminate manual reconciliation.
This also includes an automated account updater for all major card brands (Visa, Mastercard, Amex, and Discover), minimizing churn from expired or replaced cards.
With Stax Bill, it’s easy to set up and track product and service pricing packages. The solution streamlines subscription billing by giving you the ability to establish dynamic payment schedules. You can also adjust payment amounts and pause subscription billing at any time.
2. Decide how to manage payment/authorization information
If you allow your customers to save their credit or debit card details to their account, you’ll already have some card information on file for the purpose of facilitating one-off payments. You should never touch raw card data. Use a migration service to move existing tokens securely from your old gateway to Stax’s PCI-compliant vault.
3. Set your recurring billing schedule
If you’re going to implement recurring billing, it’s a good idea to offer customers several payment schedules. There are two main benefits to this approach. Firstly, it allows customers to select the plan that is most convenient for their needs. But most importantly, it also opens up further promotional opportunities for your business.
For example, if you’re a company that offers a subscription for online fitness classes, you could bill customers at a discounted rate in exchange for signing up for a six month or annual period, while reserving more expensive subscriptions for flexi or month-to-month plans that offer your business less financial security. When offering annual plans, ensure your system handles automated renewal notifications to stay compliant with state and federal auto-renewal laws (like California’s SB-313).
4. Inform your customers that you offer recurring payments
Now that you’ve sorted out your payment provider and recurring payment structure, it’s time to let your customers know about your offerings. The convenience of automatic payments is a great selling point for any business, so it’s a good idea to spread the word to both existing and prospective customers.
For example, you can inform your current subscribers by sending out a dedicated email that explains how recurring billing works and how it benefits them. This message should also include a link to a dedicated page on your website. This way, you can also link to it from other marketing channels, such as social media or paid ads.
Final words
Recurring billing isn’t just about ensuring a more reliable cash flow or making your accounting process easier; it’s also about creating a more convenient, frictionless payment experience that increases customer satisfaction and loyalty. When doing business with you feels easy and seamless, customers are far less likely to jump ship to a competitor. And with the added bonus of being able to add an entirely new product or service offerings, a recurring payment model could be one of your greatest acquisition tools yet.
Ready to implement recurring payment processing?
Contact us to learn more about Stax Bill and how you can use it in your business.
Quick FAQs about credit card processing
Q: What is recurring credit card processing?
Recurring credit card processing refers to a billing system where a business charges a customer’s credit card with repeated payments on a predetermined schedule. It is also known as recurring billing or automatic payment.
Q: What is the difference between a recurring charge and a one-time charge?
A recurring charge is an ongoing authorized transaction between a buyer and seller, where the customer’s payment information is kept on file. A one-time charge, on the other hand, is a single transaction where no ongoing payment service or saving of payment details is authorized.
Q: What are the benefits of offering recurring credit card processing payments?
Recurring credit card processing payments increase convenience for customers, enable businesses to add new product or service offerings, minimize time and effort with payment processing, and defend against ecommerce fraud.
Q: What kinds of businesses would benefit from recurring credit card processing payments?
Businesses that would benefit most from recurring payments include subscription services, membership models, SaaS companies, and financial services.
Q: How can I implement recurring credit card processing in my business?
To implement recurring credit card processing, you need to select a recurring payment processor, manage payment/authorization information, set your recurring billing schedule, and inform your customers that you offer recurring payments.
Q: What is Stax Bill, and how can it help my business?
Stax Bill is an all-in-one subscription and recurring billing solution that provides a customer-facing portal for your customers to manage their payment method and billing schedule. It includes a card updater for Visa and Mastercard, helping you to minimize late or missed payments due to expired credit cards.
Q: What are fixed payments and variable payments in recurring billing?
Fixed payments mean that the same amount of money is charged to a customer’s account with each cycle, while variable payments may fluctuate depending on a customer’s use of a product or service, such as utility bills.
Q: How does recurring credit card processing play a role in minimizing ecommerce fraud?
Recurring payment processors and POS solutions are PCI-compliant to ensure safe transactions and storage of sensitive information, enabling businesses to better protect themselves and their customers against fraudulent behaviors.
Q: What is the role of a recurring payment model in customer retention?
The convenience of automatic payments can enhance the customer experience, thereby improving brand loyalty and retention. It provides a seamless and frictionless payment experience, making customers less likely to switch to competitors.
