The Small Business Owner’s Guide to Recurring Payment Processing
Recurring payments are commonplace among small businesses. If you have returning customers paying you monthly, weekly, or annually, automating that transaction process can help to streamline your business.
Often interchangeably referred to as subscription billing, recurring payments are most often suitable for subscription-based services or solutions — though not entirely limited to them. Any small business that has customers returning periodically can offer recurring payments as a convenient option for their account.
As for setting up recurring payments, there are a few ways this can be done. What follows is an all-in-one guide to recurring payments — how they work and what to consider when selecting a provider.
What is Recurring Payment Processing?
Recurring payments are pre-scheduled payments that automatically repeat the billing cycle. This could be weekly, monthly, or annually.
What makes recurring payments different from a customer payment made in person or processing an invoice is automation. Your customers need not do anything to process their payment each month (or year). They simply sign up, and you set up the recurring payment processing.
Through a payment processing provider, you input their payment information (debit card/credit card) and set up the prearranged payment schedule. You have complete control, both during and after setup. You can set an expiration date, pause one month (or more), change the amount, or do custom one-offs.
As for how payments are taken, this can happen in two ways:
1. Fixed Recurring Payments
Fixed recurring payment options are best suited for situations where the payment amount is the same every time. Say a gym membership is $25 per week. The amount would be set at this fixed price each week.
2. Variable Recurring Payments
Variable recurring payments, as the name suggests, are variable. This would be most suitable in cases where the amount is subject to usage, so the bill changes each month. Utility companies and telco providers will typically use variable recurring payments.
How Does Recurring Payment Processing Work?
The first step to processing recurring payments is to find a merchant account or payment service provider. Both solutions help you accept electronic payments, which is how your recurring payments will be processed. While you have these two options, one is much easier than the other.
Payment service providers are one-stop shops for payment processing. They handle all aspects of electronic payments. That means processing, as well as securing and depositing funds into your merchant bank account.
Your merchant account, comparatively, is essentially just a bank account. To go this route, you would need to find a solution for security and processing on top of the merchant account. For this reason, working with a payment processor directly is the most convenient option.
Once you have your payment processing solution, it’s just about navigating the software and setting up steps.
From the customer, you will need to acquire a signed one-time authorization form. This gives you their consent to set up the transactions and keep their card on file. This information then goes into your payment system, where you schedule the recurring payment type (fixed or variable).
If your customers are hesitant to set up direct payments (ACH), most payment software will also have recurring billing invoicing features. Through this, your customer is automatically invoiced, and it’s up to them to pay the bill.
When a direct debit is taken, merchants have to send a digital notification to the customer. You can also automate this process.
The Benefits of a Recurring Payment System
According to Paysafe’s 2020 report, Lost in Transaction, COVID has fueled a rise in subscription plan sign-ups. It’s believed that attempts to avoid checkouts and in-person interactions were a big influence in subscription adoption increases — with the US leading the world in these figures.
69% of American consumers have multiple subscriptions and 28% say they have at least four. In contrast, the UK has 47% of consumers with multiple subscriptions and 10% with at least four.
With the above in mind, the most obvious benefit is the customer experience. People can sign up for your services from the convenience of their couch or they can sign up just once in person, and the rest just goes on autopilot.
There are numerous other benefits to consider though — not just for the consumer.
1. Recurring Payments Save Time
Processing credit card payments manually can be a full-time job. Setting up recurring payments allows you to automate that process and regain your much valued time.
The same goes for your consumers. The subscription business model saves them the time having to think and plan their bill payments. They can set them up once and forget about them.
2. Recurring Payments Improve Customer Retention
A benefit for merchants is minimizing the times a consumer has to think about whether they still want your service. Through subscriptions, many consumers leave unused recurring payments in case they pick it up again next month. Opting out takes more effort than processing the payment, so many don’t bother.
This gives you an opportunity to continue nurturing that customer. You can understand how they engage with you and work to improve it before they opt out.
3. Recurring Payment Processing Predicts Cash Flow
When you have recurring payments scheduled in a system, it’s very easy to predict cash flow. This is good for your bottom line. This predictability can help you get a loan, plan for growth, and reduce late payments.
Types of Businesses That Use Recurring Payment Processing
We’ve talked a lot about subscriptions, as this language is used interchangeably for recurring payments. However, the most common subscription-type services aren’t the only businesses that can use recurring payments. Here’s a list of all the different types of businesses that use recurring payments.
Membership Services
Think gyms, networking memberships, social clubs, or co-working facilities.
Professional & Personal Services
Tutoring, cleaning, personal training, website management, or freelance services — any service that requires customers to book your time.
Subscription Services
Streaming services are the most obvious, but this can also be SaaS products, website subscriptions, magazines, or even meal services like HelloFresh.
How to Choose a Recurring Payment Provider for Your Business
How you accept payments impacts fees that you incur from banks, card networks, and payment processors. Determining which payment provider is best for you requires you to know your business needs first. Ask yourself:
1. What Type of Payment Procesing Do I Need?
You’ve already worked out that you want to be able to process recurring payments, but what about other transactions? Do you process these through a website? How do your customers usually pay?
2. What Kind of Recurring Payment Plans Do I Want to Offer?
Pretend you’re Netflix for a moment. You have different plans that equate to different levels of access to the platform. How many of those plans do you want to be able to offer to your clients?
If online or e-commerce subscriptions are going to be your solution, you will need to make sure your provider offers the capability to customize these plans.
Once you’ve thought about you and your business needs, it’s time to make a checklist of what you expect of a provider.
3. Are Payment Providers PCI Compliant?
While most payment providers in the US will be PCI compliant, it’s an absolute must to check this as it’s essential for safety and security. If the provider is not PCI compliant, you need to do this on your own.
4. Is The Recurring Payment Processing Setup Simple?
When your recurring payment groove is in full swing, you’re going to be setting up a lot of these. You’re also going to need to make changes over time. You want to make sure that the setup and the ongoing subscription management for the customer’s account are simple.
You want to be able to pause payments, update expiration dates, change amounts, and have flexibility through your system. You also want a system that schedules an automatic retry when cards are declined.
5. Are the Recurring Payment Fee Structures Transparent?
Recurring payments don’t attract their own special fees, but it is important to look into your provider and see how they charge for fees. You want a provider that’s transparent about what your fees are for.
6. How is the Tech Support?
Find out if the provider offers support 24/7 and what kind of support they provide. Do you have a direct line to customer service? Or are your interactions limited to chat? Determine what you will need and assess this against what the provider offers.
The Best Recurring Payment Providers for Small Businesses
Now that we’ve covered how recurring payments work and what you should be looking for in a provider, let’s take a look at some of our top picks for recurring payment providers for small businesses.
1. Payment Depot
Payment Depot is an all-in-one payment processor that can handle electronic payments as well as payment processing. Although Payment Depot can be used with most payment gateways through its API, their payment solutions provider of choice is SwipeSimple.
SwipeSimple’s software makes it easy for merchants to set up, edit, and manage scheduled recurring payments. All card information is stored securely through PCI-compliant software. Plans start at $49 a month with interchange-plus pricing for transactions.
2. Square
Square is a popular merchant account among small businesses and startups, thanks to its user-friendly interface and low fees for low transaction volumes.
Square customers can get access to recurring payments through Square Invoices. Using Square Invoices, customers are notified when payments are processed. While the invoicing solution is free, the transaction does come with a 3.5% plus 15 cents transaction fee.
3. PayPal
PayPal has a lot of favor for being one of the most well-known payment provers, particularly for online payments. Their “subscribe” button is easily embedded on digital materials or web pages for a super-smooth sign-up.
To access PayPal’s recurring billing features, merchants need to be signed up for either Payments Pro or PayPal Virtual Terminal. Each plan is $30 per month. On top of this, the recurring payments feature attracts a monthly fee of $10, and there is a 2.9% plus 30 cents transaction fee.
4. Stax by Fattmerchant
Stax by Fattmerchant is a great merchant account with a recurring billing system through its virtual terminal that allows you to accept payments on any device.
You can customize recurring payments — mobile payments are accepted and it can sync with Quickbooks Online. The monthly starter price for Stax is $99 per month and transaction fees depend on the plan.
5. Stripe
Stripe is a well-known payment provider adopted by many online retailers and startups with international, subscription, or in-app requirements. Its many third-party integrations make it a strong option for small businesses that operate multiple channels.
Recurring payments are free to set up through Stripe. Users are only charged 2.9% plus 30 cents.
All Your Needs in One Place for Recurring Payment Processing
Payment Depot’s versatility as a payment processor and facilitator of payment solutions makes it a provider of choice for small businesses that want comprehensive solutions at a transparent rate under just one roof.
To learn more about how recurring payments can help your business retain more customers and improve your cash flow and workflow, contact Payment Depot today!
FAQs about Recurring Payments
Q: What are recurring payments?
Recurring payments are pre-scheduled, automated payments that repeat the billing cycle, which could be weekly, monthly, or annually. They are common with subscription-based services but are not limited to them. Any small business with customers returning periodically can offer recurring payments as a convenient payment option.
Q: How are recurring payments set up?
The initial step to process recurring payments is to obtain a merchant account or payment service provider. Customers need to authorize the setup of recurring transactions and keep their cards on file. Payments can be set-up as fixed or variable, depending on how constant or variable the charges are.
Q: What are the benefits of recurring payments for small businesses?
For businesses, recurring payments streamline the transaction process, enabling prediction of cash flow helpful for loan procurement and growth planning. It minimizes the manual work involved in processing credit card payments. It also reduces late payments and lapses as customers opt for convenience and automation.
Q: What are the advantages of recurring payments for customers?
Customers save time in planning and making their bill payments. They can set them up once and forget about them. It eliminates the need to reconsider every billing cycle if they still need a service if they are on a subscription plan.
Q: What are some things to consider when selecting a recurring payment provider?
When selecting a provider, ensure that they are PCI compliant for safety and security. Examine if their system is simple to use for setting up and managing subscriptions. The provider’s transparency about charges and availability of support is also crucial to consider.
Q: What are some top picks for recurring payment providers for small businesses?
Some top picks for recurring payment providers for small businesses include Payment Depot, Square, PayPal, Stax, and Stripe. Each provider offers different features and fee structures that businesses should consider based on their specific needs.
Q: What businesses can use recurring payments?
Various businesses can employ recurring payments. For instance, gyms, networking memberships, social clubs, co-working facilities, freelance services, streaming services, and even meal services like HelloFresh.
Q: What roles do recurring payments play in the e-commerce sector?
With the increase in online shopping and subscription services, recurring payments play a significant role. Businesses can offer multiple plan options that equate to different access levels. The recent rise in online subscription sign-ups is massively influenced by attempts to avoid checkouts and in-person interactions amid COVID.
Q: What other features do payment providers offer for recurring payments?
Apart from supporting recurring payments, many providers offer customization options for payment plans, accepting mobile payments, syncing with accounting systems like Quickbooks, etc. They also accommodate adjustments like the ability to pause payments, update expiration dates, and change amounts.
Q: How do direct payments (ACH) work in the recurring payment system?
The recurring billing invoicing feature, available in most payment software, supports direct payments (ACH). If customers are hesitant to set up direct payments, the customer is automatically invoiced, leaving them to pay the bill. After a direct debit is deducted, a digital notification is automatically sent to the customer.