How to Set Up Recurring Payments in Your Business
A report by Juniper Research found that the subscription economy will touch $593 billion this year in overall transaction value. What’s more, this figure is predicted to cross $990 billion by 2028. This may seem hardly surprising as almost every business—from streaming services to cosmetics companies—is using the subscription model to generate revenue.
Originally used by magazine and newspaper publishers to develop a steady reader base, subscriptions are now being purchased for meal kits, software access, and even toiletries.
Getting paid is important for every business owner. But when you run a monthly subscription business or require regular payments from customers, it can be tedious to manually process the transaction every period.
This is where recurring payments come into play. When you set up recurring payments, you eliminate the hassle of manual data entry and payment processing. Instead, your tech stack handles the transaction for you, so you can focus on your business while enjoying the peace of mind of guaranteed cash flow.
If you’re looking to set up a subscription payment model for your business, this article will give you all the information you need.
What Are Recurring Payments?
Recurring payments is a payment system set up by businesses where the price of a product or service is deducted at regular, predetermined intervals from a customer’s chosen payment method. This term is often used interchangeably with subscription payments and recurring billing.
Think of recurring payments as subscriptions. As consumers, many of us have some sort of recurring payment: it’s a subscription box like Barkbox for puppers and Dollar Shave Club for… anyone with hair, or it’s your bank withdrawing mortgage payments, or your landlord deducting your monthly rent.
Basically, a customer has consented to have the merchant (Barkbox, DSC, the bank, landlord, etc.) set a billing cycle to deduct payments on a regular, pre-determined (and pre-agreed) date. It’s up to the consumer to cancel the agreement and payments with the merchant directly. Perhaps the most well-known example of a company using recurring payments is Netflix. You pay a certain amount each month for unlimited access to their digital library.
The Subscription Economy Index report published in 2021 states that over a decade, the subscription economy grew by a staggering 435%. The subscription model has worked well for SaaS providers over the years but has also shown immense success in other industries.
Subscription brands in the pets & animals industry saw a 64% growth in their customer base in 2021, while food and beverage and home goods grew 41% and 39% respectively.
As subscription-based business models continue to grow, so does the need for recurring payments.
Businesses That Use Recurring Payments
As briefly mentioned earlier, the types of businesses that benefit most from recurring payments are those with ongoing agreements with their customers.
The types of businesses that often have the need for recurring payments are:
- Banks and financial institutions (e.g., your mortgage or rent, HOA fees)
- Car dealerships (e.g. your lease or finance)
- Gym memberships
- Subscription services (e.g. Netflix, Birchbox, Hubble Contacts)
- Utility providers (e.g. internet, hydro, cell phone provider)
- Learning and education (e.g. small business coaching programs, higher education institutions)
- Software as a service (SaaS) providers (e.g. MailChimp, Google, Adobe, Zoom)
- Payment plans (e.g. when a product or service is costly, breaking up the fee in equal installments)
Pros and Cons of Recurring Payments
But what are some of the good and bad aspects of recurring payments? There are several benefits to recurring payments that help businesses flourish. However, the subscription model isn’t a miracle—you also need to be aware of its potential risks. Business owners need to learn everything they can about recurring payments and weigh the pros and cons before setting them up.
Let’s take a look at the benefits first.
Improves customer experience and retention – Recurring payments require customers to enter their information and preferences once, and payments occur automatically afterward. Additionally, with a subscription model, customers have a good idea of how much they will spend on that product on a monthly or recurring basis. This predictability can be comforting.
When you add this to the fact that payments become hassle-free, it’s clear why a subscription billing method improves customer retention and experience. Customers don’t have to remember due dates and are always informed when their accounts are billed and deducted. This incentivizes them to remain with the company for a long time.
Predictable income stream – Businesses can easily estimate their revenue stream month on month if they work around a subscription-based model. This makes strategizing, budgeting, planning, revenue forecasting, etc. much easier.
Reduced manual effort – Perhaps the biggest advantage of recurring payments is they make billing and collection almost effortless for the business. Once a customer’s information is stored in software with recurring billing capabilities, the billing process becomes completely automated.
Bills, receipts, and reminders are sent automatically at set intervals. Additionally, manual collection becomes a thing of the past as the payment gets deducted automatically from the customer’s bank account or card. Your customers never miss a payment deadline and your accounts remain healthy.
Using recurring billing software also reduces errors in billing and accounting. This type of automation saves businesses money, time, and effort.
Data analysis, upselling, and cross-selling – Apart from a customer’s payment information, billing software can store information about their purchase behavior, usage patterns, etc. This information can be invaluable to businesses.
Businesses can analyze this data to improve their products and provide better offerings to their loyal customers. Upselling and cross-selling can be more successful with data analysis and the customer lifetime value can increase with such activities.
All said and done, recurring payments do have some drawbacks.
Billing issues – Even in a smooth, automated billing process, issues can crop up that halt payments. Expired cards, outdated information, insufficient funds, etc. can all block payments from being processed. Here, the billing software can notify the customers and company accordingly.
Security issues – As with any online software, billing applications are susceptible to fraud and cyberattacks. Even if software providers have made their applications as robust as possible, there is always a possibility of security breaches and cybercrime.
Refunds and chargebacks – A recurring payments system is often called a “set and forget” system but this means there could be charges on a customer’s account that they didn’t want. Moreover, billing errors can also lead to refunds and in some cases—chargebacks.
Refunds and chargebacks can be time-consuming to process and, of course, lead to loss of revenue. Chargebacks can be even more dangerous as they expose your business to penalties. High chargeback rates can even make yours a high-risk merchant account.
| PROS | CONS |
| Automated, hassle-free payments (no more keeping track of due dates, and predictable expenses) for customers | Possible issues like expired credit cards require follow-ups |
| Improves customer loyalty and retention | Possible fraud |
| Effortless billing and collection (no need to send invoices or reminders) | Possible billing errors requiring refunds |
| Receive payments on time (no more missed deadlines) | Possible chargebacks (time-consuming, costly, risky) |
| Reduces billing and accounting errors | Extra data protection and payment security are required since you’re dealing with sensitive information |
| Successful upselling/cross-selling and greater CLV from analyzing payment data | Possible NSF charges(consumers need to ensure there’s money in the bank or room on their credit cards) |
Generally speaking, the pros of recurring payments mostly outweigh the cons. However, it’s important to have the whole picture before knowing what decision is best for you and your business.
How Do Recurring Payments Work?
Recurring payments are set up through your payment provider. Most payment gateways support recurring billing. Simply log into your account and enable the feature that stores the card number for future use. You can also store your customers’ payment data and tokenize the info for future billing. There’s no need to store the credit card’s 3-digit CVV code. That’s because the CVV is simply for card verification so once you‘ve used it once there is no reason to have it every time.
Pro tip: You should always enter as much address info as possible on your stored card profiles. The more info you have, the lower the interchange rates. And lower rates and fees can lead to sizeable savings.
Payment Depot supports the following gateways:
- Authorize.net
- PayTrace (for level 2 and level 3) B2B
- SwipeSimple
How to Choose A Good Payment Solution for Recurring Payments
To put a recurring payments system in place for your business, partner with a reputable payment solutions provider. There are so many options out there and it can be difficult to choose one, especially if you’re not well-versed in payments and finance. Here are a few tips to ensure that you choose the recurring payment solution best suited to your business.
- Make sure the billing application has functionalities that not only match your current business needs but also your long-term plans and goals.
- Check that the software solves your biggest pain points. Different applications have different capabilities so choose the one that addresses all your business’ billing problems.
- The company you partner with for billing solutions must comply with data security, accounting, and financial regulations. You must ensure that it is PCI DSS compliant.
How to Set Up Recurring Payments in Your Business
Every payment gateway differs in how you need to set up your recurring charges. So, we’ve compiled a quick “how-to” for:
- PayPal
- Stripe
- Square
- Authorize.net
- Quickbooks
How to set up recurring payments on PayPal
PayPal has more than 346 million active users on the platform. Merchants use it to help them collect payment for products and services. PayPal Subscription Payments later launched to allow merchants to set up recurring payments.
Creating PayPal recurring payments is actually quite simple. Once your account is properly set up, it’s as easy as creating a button you can put on your website or other marketing materials and direct potential customers to sign up. You’ll need a PayPal Terminal or Payments Pro account to set up recurring payments, and both of these have a $30 monthly fee.
- Under the “Tools” drop-down, select “Recurring payments.”
- From there, you’ll be able to create a recurring payment for a product or service as well as create that “Subscribe” button you can embed on your site. Whenever someone clicks that button, PayPal will request customer profile information from your new clients.
How to set up recurring payments on Stripe
Stripe is an online payment processor used by millions of businesses around the world. It has a focus on ecommerce but can also accommodate in-person payments. Stripe Billing allows merchants to set up recurring payments.
- Log in to Stripe Billing and select a product or service for which you want to enable recurring payments.
- Assign your product a pricing plan.
- Now you can subscribe a customer to that pricing plan. Any customers assigned to that pricing plan will be automatically sent a detailed email about their subscription plan.
Note, that with Stripe recurring payments you can also add setup fees and other charges on an ad hoc basis. Customers can choose to pay by ACH transfer as well as credit or debit cards and eChecks, which provides them with more flexibility. And like PayPal, you can add a form embedded on your website or email so people can sign up natively (i.e. without being redirected to another site).
How to set up recurring payments on Square
Square offers in-person and online payment processing, along with a complete POS system. It’s a popular tool for merchants who sell in person. Here’s how to set up recurring payments with Square:
- From your dashboard, select the option to create an invoice.
- Hiy “Recurring” from the drop-down menu, where you’ll specify the frequency for the payments. From there, check “Automatic Payments” and customers with credit cards on file will be billed automatically.
- If the customer doesn’t have a card on file, you can select the option to “Allow customer to save their card.”
- At this point, you’ll be able to complete the invoice with their payment details including any discounts you’d like to provide.
- Then select the schedule option to ensure your payments are set to recur on the right date.
How to set up recurring payments on Authorize.net
Authorize.net is a payment gateway provider that works with other tools and technologies to allow merchants to process credit card transactions. You can also use it to set up recurring payments. Here’s how:
- Log in to your merchant interface, and under products and services, and click on automated recurring billing (ARB).
- Click on sign up for ARB at the bottom of the page.
- From here, you’ll be able to create new ARB subscriptions, integrate it with your website, view the status of your ARBs, as well as configure your email notifications, and more.
How to set up QuickBooks recurring payments
QuickBooks is an accounting and bookkeeping software that includes payment processing features. One of those features is the ability to set up recurring payments:
- Log in to your account and navigate to Customers.
- Click on Credit Card Processing Activities and then Set Up Recurring Charges.
From here, you can add, edit, delete, pause, and manage customers’ recurring payments.
Recurring Payments and Your Business
Recurring payments are a great way to generate recurring revenue and increase customer lifetime value. But you need payment processing technology that can make it happen automatically, so you’re not painstakingly processing payments each month by hand.
With Payment Depot, you can set up recurring payments and get access to our interchange-plus pricing model, saving you from overspending on card fees and increasing your overall earnings.
FAQs about Recurring Payments
Q: What are recurring payments in a business context?
Recurring payments are transactions that happen automatically on a set schedule, as consented by the customer. These are typically used in businesses that require regular payments from customers, such as subscription services, utilities providers, and financial institutions.
Q: Why are recurring payments important for businesses?
Recurring payments are crucial for businesses as they eliminate the need for manual data entry and payment processing, save time, and guarantee regular revenue.
Q: Which types of businesses benefit most from recurring payments?
Businesses that benefit most from recurring payments include banks and financial institutions, car dealerships, gym memberships, subscription services, utility providers, educational institutions, Software as a Service (SaaS) providers, and businesses offering payment plans.
Q: What are the pros and cons of having recurring payments in a business?
The pros of recurring payments include receiving payments on time, eliminating the need for sending monthly invoices, and saving time because of automation. The cons include potential issues like expired credit cards requiring follow-ups, possible fraud, billing errors requiring refunds, extra data protection needs, and possible non-sufficient funds (NSF) charges.
Q: How can businesses set up recurring payments?
Businesses can set up recurring payments through their payment provider. Most payment gateways support recurring billing. The process may vary slightly depending on the payment gateway used (such as PayPal, Stripe, Square, Authorize.net, Quickbooks, etc.).
Q: What are some tips for setting up recurring payments in business?
Businesses should always enter as much address info as possible on stored card profiles to lower interchange rates. Moreover, they should ensure pricing and repayment policy transparency, offer flexible payment methods, and check for regulatory compliance.
Q: How can recurring payments impact customer lifetime value?
Recurring payments can significantly increase customer lifetime value by generating regular revenue and ensuring customers stay engaged with the business over a longer period.
Q: Are there any fees involved in setting up recurring payments?
Yes, depending on the payment gateway used, there might be associated fees. For instance, PayPal requires a Terminal or Payments Pro account to set up recurring payments, and both of these have a $30 monthly fee.
Q: How can businesses handle expired credit cards in recurring payments?
Expired credit cards require follow-ups. Businesses need to have a system in place to identify and notify customers about expired cards and request updated information.
Q: How do businesses ensure data protection and payment security in recurring payments?
Businesses must adhere to data protection regulations and implement secure payment solutions to safeguard sensitive customer information. They may also use tokenization to secure stored payment data.