Recurring payments can potentially transform businesses. They generate predictable revenue, significantly reduce administrative time and foster strong, lasting relationships with customers. With US e-commerce sales through subscriptions nearly doubling since 2019, recurring payments are becoming more prevalent.

Recurring payments can improve the payment experience for customers, and churn rates have recently declined for businesses using a recurring payment model. For businesses, recurring payments means dependable revenue and the ability to forecast future income with a higher degree of accuracy.

Below, we’ll describe the process of setting up a recurring payment model and help you access these substantial benefits for your business.

What’s in this article?

• What are recurring payments?
  
• Benefits of recurring payments for businesses
  
• What types of business offer recurring payments?
  
• Things to consider when implementing a recurring payment model
  
• How to set up recurring payments
  
• How to set up recurring payments with Stripe Billing
  

What are recurring payments?

Recurring payments, also known as subscription payments or auto-pay, are payments that are automatically charged to a customer's credit card or bank account on a pre-arranged, scheduled basis. They're commonly used for utility bills, gym and other memberships, subscription services such as Netflix, and software licences, among other things.

Businesses typically set up recurring payments to occur monthly, but they can also happen at other regular intervals, such as weekly, quarterly or yearly. Customers find recurring payments to be convenient, as they no longer need to remember to pay, and service interruptions due to missed payments are less likely. For businesses, they provide predictable revenue and help reduce administrative costs.

Benefits of recurring payments for businesses

Recurring payments offer many benefits to businesses, affecting their operational and financial strategies. Here’s an explanation of some of the key advantages:

• Predictability of revenue
  Recurring payments bring a high level of predictability to a company’s revenue stream. Instead of being uncertain about when and if customers will make one-off payments, businesses can count on a steady stream of income at regular intervals. This predictability aids financial planning and makes budgeting more accurate and reliable. It allows businesses to plan for future growth and invest in infrastructure, knowing that the revenue will be coming. It also facilitates smoother business operations by reducing uncertainty and providing a reliable financial base.

• Improved cash flow
  Cash flow management is important for any business. Recurring payments significantly improve cash flow by providing a steady stream of income. This regular inflow of cash makes it easier for businesses to manage their expenses, pay their bills on time, invest in growth and maintain financial stability. By contrast, irregular income can lead to cash shortages, making it difficult to meet operational expenses and investment needs.

• Cost efficiency
  Implementing a recurring payment system can bring significant cost efficiencies. By automating the billing process, businesses reduce the administrative burden and cost associated with manual billing and collection. This efficiency can save substantial time and resources.

• Increased customer retention
  Recurring payments can increase customer retention. When customers sign up for automatic billing, they are likely to continue using the service, given the ease and convenience of the payment process. This can result in a higher customer retention rate, which is important for business growth.

• Reduction in late payments
  Recurring payments reduce the number of late or missed payments, enhancing the reliability of revenue streams. This regularity helps businesses maintain a healthier cash flow and reduces the time and resources spent on tracking down late payments.

• Opportunity for upselling and cross-selling
  Recurring payments make it easier for businesses to upsell or cross-sell other products or services. With an existing financial relationship and payment system in place, customers are more likely to consider additional offerings from the business. This can increase revenue and customer loyalty.

• Simplified accounting
  Recurring payments simplify the accounting process. Tracking revenue becomes more manageable, and the process of reconciling accounts is simpler. This can reduce errors, save time and make it easier to track financial performance.

• Environmentally friendly
  Digital billing eliminates the need for paper invoices, reducing the business’s carbon footprint and aligning with many customers’ desire for eco-friendly practices.

What types of business offer recurring payments?

Recurring payments have become a standard billing practice in many industries, with a diverse range of businesses using this payment model. This is largely due to the convenience and reliability it provides to both businesses and customers. By offering recurring payments, companies can automate their revenue collection process and stabilise their cash flow, while customers appreciate the ease and predictability of the payments.

Here are some examples of businesses across various sectors that typically use recurring payment options:

• Subscription services: From streaming platforms like Netflix or Spotify to digital news outlets, subscription services charge a recurring fee, usually monthly or annually, for access to their content.

• Utilities: Utility providers, such as those supplying electricity, water, gas or Internet services, often use recurring payments to ensure consistent service and smooth financial operations.

• Fitness and wellness centres: Many gyms and wellness centres, such as yoga or Pilates studios, offer memberships based on recurring payments, which are often charged monthly.

• Software-as-a-service (SaaS) companies: SaaS providers, such as Adobe or Salesforce, typically charge a recurring subscription fee for access to their software platforms.

• Insurance companies: Recurring payments are standard in the insurance industry, where premiums are usually paid monthly, quarterly or annually.

• Telecommunication companies: Phone and Internet service providers frequently bill customers on a recurring basis to ensure uninterrupted connectivity.

• Non-profit organisations: Many charities and non-profit organisations offer an option for donors to set up recurring donations, providing a consistent flow of funds to support their cause.

• Meal delivery and grocery services: Businesses that provide meal kits or regular grocery deliveries often use a recurring payment model, typically charging customers weekly or monthly.

• Online learning platforms: Platforms offering online courses or educational content, such as Coursera or MasterClass, typically utilise recurring payments for their subscription services.

• Cloud storage providers: Companies offering cloud storage services, such as Google Drive or Dropbox, often use recurring payments for their premium storage plans.

• Rental services: Property managers, car leasing companies and equipment rental businesses might also use recurring payments to streamline their billing process and ensure regular income.

These are just a few examples of the wide range of businesses that make use of recurring payments. As the digital economy continues to evolve, it’s likely that we’ll see even more industries adopting this convenient, flexible and efficient payment model.

Things to consider when implementing a recurring payment model

Setting up a recurring payment model for your business can be a great way to ensure predictable revenue and improve customer retention. However, implementing this kind of system requires careful planning and consideration. Here are some points to consider:

• Understand your business needs
  Start by thoroughly understanding your business and its needs. Ask yourself if your business would benefit from a recurring payment model. Businesses with regular, ongoing services, such as subscriptions, memberships or long-term contracts, are usually well suited to recurring payments. Examine your specific situation and consider whether recurring payments align with your business model and strategy.

• Choose the right pricing model
  There are several different pricing models for recurring payments, including flat-rate, tiered, usage-based and freemium. The best model for your business will depend on your product or service, customer base and market conditions. Research and compare these models to decide which one is most suitable for your offerings.

• Ensure compliance
  Compliance with legal and financial regulations is necessary when setting up recurring payments. This includes compliance with the Payment Card Industry Data Security Standard (PCI DSS) and other applicable laws and regulations, depending on your location and the nature of your business. Make sure that you consult with legal and financial advisors to ensure that all aspects of your recurring payment system are compliant.

• Provide transparency
  Transparency is key to customer satisfaction. Make sure that your customers fully understand the terms and conditions of the recurring payment, including how much they will be charged, when the payment will be taken and how they can cancel the recurring payment. This not only builds trust, but also helps prevent future disputes or confusion.

• Offer flexible payment options
  Offering a variety of payment options can enhance the customer experience. Consider allowing payments through various methods, such as credit and debit cards, bank transfers and digital wallets. It’s also beneficial to offer different billing cycles, such as monthly, quarterly or annually, to meet various customer preferences.

• Invest in a reliable payment gateway
  A reliable payment gateway is important for handling recurring payments. Look for a solution that offers automation, security and integration with your existing systems. It’s also beneficial if the payment gateway can handle failed payments and send reminders for upcoming payments.

• Manage failed payments
  Plan for how you will handle failed payments. This could include setting up automated retries, notifying the customer or pausing the service until payment is received. Make sure that you communicate your policy for failed payments clearly to your customers.

• Provide excellent customer support
  Finally, provide excellent customer support. Customers should be able to easily contact your support team if they have questions or issues with their recurring payments. Training your team to handle these queries can enhance customer satisfaction and help retain your customers.

Considering the factors above will help you design a payment system that both benefits your business and creates an easy payment process for your customers.

How to set up recurring payments

Here’s a step-by-step guide to how to set up recurring payments:

1. Understand your business needs: Before you start, gain a clear understanding of your business model and needs. Is your product or service suited to a recurring payment structure? This is typically most beneficial for businesses that offer subscription-based services, memberships or long-term contracts.

2. Choose a suitable pricing model: There are different pricing models to consider for recurring payments: flat-rate, tiered, per-user, usage-based and freemium, among others. The best model will depend on your specific product or service, customer base and overall business strategy.

3. Select a reliable payment gateway: Choose a secure, reliable payment gateway that is PCI DSS compliant and offers features such as automated payment retries, dunning management and simple integrations with your existing business systems.

4. Compliance check: Ensure that your recurring payment model complies with all applicable laws and regulations. This may include local laws in your country of operation, international regulations (if you operate globally) and financial regulations related to secure payment processing.

5. Set up your recurring payment system: Using the chosen payment gateway, set up your recurring payment system. This will involve setting the payment frequency (e.g. weekly, monthly, annually), setting the price according to your chosen pricing model and possibly segmenting your customers based on their subscription tier or usage.

6. Offer multiple payment options: For a smoother customer experience, provide multiple payment options, including credit and debit cards, bank transfers, digital wallets, etc. This flexibility increases the chances of customers choosing your service and sticking with it.

7. Handle customer authorisation: Before you can start charging customers on a recurring basis, you’ll need to get their explicit consent. Put a system in place to capture and store this authorisation securely.

8. Communicate clearly: Clear communication helps build trust and reduce customer complaints and disputes. Ensure that your customers understand the terms and conditions of the recurring payment, including the amount, billing cycle and how they can cancel or modify the subscription.

9. Plan for failed payments: Even with a reliable payment gateway, you’ll need a strategy for dealing with failed payments. Consider setting up automated retries, sending email notifications to customers and possibly suspending services until payment is successful.

10. Provide customer support: Finally, excellent customer support can significantly enhance the customer experience. Your support team should be trained to handle all queries related to recurring payments, ensuring quick and efficient resolution of any issues.

Setting up recurring payments requires careful planning and implementation, but the effort can pay off in the form of more predictable revenue, improved cash flow and higher customer retention.

How to set up recurring payments with Stripe Billing

Stripe Billing provides a robust set of features to manage subscriptions and recurring payments for businesses of all sizes, from startups to large enterprises.

Key features of Stripe Billing include:

• Subscriptions and invoicing
  Stripe Billing offers flexible tools to manage subscriptions and generate invoices. It allows you to set different pricing models, such as flat-rate, tiered or usage-based billing.

• Trial periods and discounts
  You can set up free trial periods and discounts for your customers. Stripe Billing handles these promotional offers and seamlessly transitions customers to regular pricing once the promotional period ends.

• Automated billing and dunning management
  Stripe Billing automates the entire billing process, including retrying failed payments and sending reminders to customers. This reduces manual work and improves collection rates.

• Global payments
  Stripe Billing supports over 135 currencies and a wide range of local payment methods, making it easy to accept payments from customers around the world.

• Customisable billing cycles
  You can customise your billing cycles based on your business needs. You can set up monthly, quarterly, annual or custom billing periods.

Setting up Stripe Billing for recurring payments

Implementing Stripe Billing for recurring payments is a strategic move to streamline your business’s financial operations and improve the customer experience. Here’s a brief overview of the process:

• Create a Stripe account: First, you’ll need to create a Stripe account. Once your account is set up, you can access the Stripe Dashboard, which will serve as your control centre for managing payments and subscriptions.

• Set up your pricing model: Within the Dashboard, you can choose your pricing model. You can create plans with different pricing tiers, billing cycles and currencies.

• Create a subscription: Once your pricing model is set up, you can start creating subscriptions for your customers. When creating a subscription, you’ll need to specify the customer and the plan they’re subscribing to.

• Handle customer authorisation: Before you can start charging customers, you’ll need to obtain their explicit authorisation. Stripe provides tools to help capture and store this consent securely.

• Manage subscriptions: Stripe Billing allows you to manage your subscriptions effectively. You can upgrade or downgrade a customer’s plan, apply discounts or cancel subscriptions as needed.

• Handle failed payments: Stripe’s automated dunning management system handles failed payments. It retries failed payments and sends reminders to customers, increasing your chances of recovering revenue.

To integrate Stripe Billing into your website or app, you can use Stripe APIs. Stripe provides comprehensive documentation and guides to help with the integration. Alternatively, if you’re using a platform such as WordPress, there are plugins available that make integrating Stripe Billing easy. To learn more and get started, go here.