A recurring payment is a transaction that repeats multiple times on a specific date range and is charged on a periodic basis, such as online software.
Led by giants like Netflix, Spotify, DropBox, and Salesforce, the subscription economy is growing by leaps and bounds, and recurring billing lies at the heart of it.
According to the latest McKinsey & Company e-commerce consumers research, 46% of Americans said to have subscriptions for online streaming-media services like Netflix or Hulu. 15% of respondents said they've signed up for subscriptions to receive products recurrently.
To put the numbers in perspective, the subscription e-commerce market has grown by over 100% annually over the past five years. How's that for a track record?
Being a "holy grail" of digital marketing, recurring payments are not something your business can't afford to skimp on in 2019.
What is Recurring Payment?
Once reserved for gym memberships and magazine subscriptions, recurring payments are quickly making their way into almost every industry.
From subscription box services like Dollar Shave Club and Blue Apron to SaaS products like Shopify and Dropbox, from utility payments to video streaming services like Netflix and Amazon Video - all kinds of enterprises are optimizing their customers' checkout experience through recurring automated payments.
So what are recurring payments? In the simplest terms, recurring payments (also known as subscription payments) take place when customers authorize a merchant to charge them repeatedly for goods or services on a prearranged schedule (monthly, weekly, daily or annually).
Done correctly, recurring automated payments can be huge time-savers for your business!
No longer do you need to chase down your customers for their payment information. Once you obtained a one-time consent from your customer to charge their card or electronic wallet, the charge will be made automatically on an ongoing basis until your customer cancels the subscription or until the recurring payment plan expires.
Neither merchant nor payer has to be physically or virtually present for the transaction to happen.
How do recurring payments work?
The easiest way to do recurring billing is through payment service providers. Being the all-in-one payment solutions, these services handle all aspects of e-payments: from collecting and processing recurring payments on behalf of customers, to taking care of payment security and depositing the funds into merchant’s business account.
Here are the main steps involved in recurring billing processing:
How Recurring Payments Can Benefit Your Business
Recurring payments are gaining steam in the world of e-commerce. And it's easy to see why. Not only do subscription payments simplify the entire billing process, but they also offer an impeccable checkout experience for your clients.
For your customers, the most significant value lies inconvenience. The recurring billing process is entirely automated and hassle-free. They don't need to go through a tedious checkout process and enter their payment data every billing cycle. Once an automatic payment plan is confirmed, the money will automatically come out of their account without them having to actually do anything.
Recurring payments can also benefit a merchant in many ways. Here are the most compelling perks of subscription billing:
Recurring payments speed up transactions
Because automated billing happens electronically, it requires little to no maintenance. The cost to acquire a new customer is a one-time expense, but you benefit from it repetitively.
The entire sales cycle is getting shorter and less expensive. No longer do you need to chase payments or spend time creating invoices - the system will do everything for you.
Once you set the initial payment schedule up and your customer agrees to predetermined billing dates, the money gets deposited into your business bank account automatically.
Recurring payments save time
Recurring billing saves you and your customers a lot of time and energy. It minimizes the time spent on payment administration.
Once you build a relationship with your returning customers, the customer service time and costs are reduced as well.
Recurring payments take some guesswork out of budgeting
Last, but certainly not least, automated billing allows you to take some guesswork out of budgeting.
As a merchant, you can count on revenue from automated payments with a high degree of certainty. Recurring payments guarantee a reliable cash flow, thus making the process of managing your existing assets and planning your future financial endeavors much easier.
If you want your business to grow big, embracing the subscription-based business model is the way to go. Enterprises that have adopted this revenue model have seen tremendous growth.
By implementing recurring billing, businesses can maximize their revenue potential and see a more consistent flow of cash and foster relationships with their long-term customers. No matter what business you are in, automated recurring payments is something worth giving a try.