With the ever-growing popularity of subscription and usage-based products and services, more and more software businesses are choosing recurring billing over one-time purchases. Even online retailers like Amazon are not left behind allowing you to set up recurring purchase items based on your chosen schedule. A recurring payment is a repeating transaction that reoccurs on a specific date range, and it enables businesses to automatically charge their customers’ accounts periodically on an agreed schedule. Businesses first obtain permission from the customer to charge their account, after which these payments are automatically processed until the customers cancel their service or opt-out of recurring billing. Accepting recurring payments accelerates your sales and augments the cash flow in the business.
Recurring payments can be both fixed and variable. With fixed recurring payments customers are charged a fixed amount every billing period. These are most common in the case of subscriptions. In the case of variable recurring payments, customers are charged a different amount based on their actual usage; hint, this should be tied to measuring an outcome for your client's use of your product.
Benefits of setting up recurring payments
Automated recurring payments are convenient for both customers and businesses. Businesses not only have the assurance of recurring revenue but they also save time from issuing invoices and manual recordkeeping.
1. Saves time
Once you set up the payment schedule for the automatic recurring payments, it takes very little time investment, or maintenance if you use a modern billing solution provider. It frees up the admin time spent on creating invoices manually, issuing and processing outstanding bills, and lowers collection costs.
2. Improves Cash flow
When you set up recurring payments you have the assurance of a steady source of cash flow every month. This also makes it easier for your finance team to predict and forecast revenue effectively. Since the finance team can calculate the expected cash flow, you can adjust your forecasts accordingly in case a customer cancels.
3. Improved customer experience
Accepting recurring payments doesn’t just make your job easier, customers also welcome frictionless payments. Your customers do not have to remember to pay their bills every month, they can just set up their payment information one time and be assured that the bills will be paid on time without incurring any late fee. As automated recurring payments save the time spent on recovering unpaid bills, you can focus on building long-lasting relationships with the customers making it easier to share customized offers when necessary.
4. Reduces late payments
Your customers are busy and may unwittingly forget to make a payment on time or miss the payment altogether. This doesn’t just have a negative impact on your business but it also hurts your customer relationships when you have to chase down customers for payments. Recurring payments eliminates this hassle by automating this whole process
Best Practices for Accepting Recurring Payments
1. Optimize billing to reduce churn
Recurring payment transactions may often get declined due to insufficient funds. Other reasons for failed payments may be technical issues. In these cases, it is important to have processes in place to retry the payment after a few days to avoid churn. Agile billing solution providers automate this process for you so that you do not have to worry about losing money due to involuntary churn.
2. Allow customers to choose their billing frequency
Another way to avoid payment failures due to insufficient funds is by aligning the billing cycle with your customers’ payday which would ensure that they have enough funds on their payment due date. Offer customers the flexibility of paying either monthly, quarterly, or annually. It is also recommended to notify customers about the upcoming recurring payment in advance so they are not caught by surprise when their cards are charged.
3. Understand the local payment methods
Credit card payments may be the most commonly accepted payment method in the US, but if you are a SaaS business there’s a chance you may be transacting globally. So it is crucial to familiarize yourself with the customer’s local payment methods. For example: In China, most shoppers prefer to pay with Alipay, or in Europe, shoppers prefer debit cards over credit cards. Choose a billing service provider that accepts different types of payment methods, so that as you scale you are assured that your billing provider can support your changing needs.
4. Ensure customers’ credit card information is up to date
Approximately 3-4% of credit or debit cards expire every month. If you want to be paid on time you must have a system in place which ensures your customer’s payment information on file is up-to-date so that the recurring payment transactions are not declined due to expired credit cards. Many payment providers offer an automatic account updater feature that allows you to automatically update the cards on file ahead of the recurring payment transaction. This tool helps in reducing declined transactions and involuntary churn.
It’s also important to set up alerts and notify your customer when their credit card is about to expire so they can update the information. You can do so with a customer portal that allows your customers to access their billing data and update payment information easily.
5. Securely store payment information
As a subscription business, you may have to store and process customer payment information. It is crucial that you have processes in place to securely store this information. If you fail to do so you compromise your customer’s information and also hurt your business’s reputation.
The best way to ensure that you are storing their information securely is by being PCI compliant. If you violate the PCI compliance regulations that result in data breaches or losses you will incur hefty penalties. However, setting up and maintaining a PCI-compliant system is a tedious process and should be left to experts like LogiSense that can take care of the process for you.
With automated recurring billing, you make it easier for your customers to transact with you while eliminating late payments and time-consuming manual billing processes. Contact one of our billing experts at LogiSense today to find out how you can get started with offering recurring payments.