These days, the recurring payments model is everywhere. Software as a service, fitness memberships, streaming media, snacks, lawn care, and even monthly fashion deliveries are just some of the products and services that are flying off the shelves of businesses of all sizes thanks to this model. With this in mind, you might be wondering whether you should set up recurring invoices for your business.
A preliminary definition.
As the name suggests, recurring billing happens over and over again. The customer and the merchant come to an agreement as to exactly how much will be withdrawn from the customer’s bank account or credit card, on what date, and for what duration. This arrangement can continue until the subscription ends, the customer’s account or credit card is closed, or the user revokes their permission. For instance, a fitness center might arrange with a patron to withdraw $30 from their bank account on the first day of each month for the next year.
There are two different types of recurring billing.
- Fixed billing. Under this arrangement, the customer is charged the same amount of money each cycle. Popular examples include fitness centers and magazine subscriptions.
- Varying billing. This is when the customer pays changes according to their usage of your products and services. Cable TV and utility companies commonly use this type of billing structure.
Regardless of which type of billing you decide to use, there are several good reasons to incorporate automated payments into your business model.
The benefits of recurring payments.
This payment model has become popular because of the numerous advantages it brings to merchants and customers alike. These include the following.
- Minimal effort for both you and your shoppers. Once both parties do the initial set-up, recurring invoices virtually run themselves. You can drastically reduce the costs that once went into manual invoicing and payment processing. By the same token, customers no longer need to worry about forgetting a payment and thus being deprived of a product or service.
- Predictability. As a merchant, you will have a much better idea of your cash flow once payments are automated. When clients have a subscription pre-set into their budget, they too benefit from this set-it-and-forget-it structure.
- Enhanced customer relationships. With automated invoices, you no longer need to chase after late payments. Furthermore, the number of awkward money-related conversations you will need to have will be markedly reduced. As a result, you can make the interactions you do have with your customers into positive ones that encourage rapport and motivate them to learn more about what you have to offer.
- Enhanced security. Thanks to the integrated gateway that processes the regularly recurring payments, you can expect a higher level of security and fewer instances of fraud.
Although recurring billing offers a great deal of predictability, as well as opportunities for enhanced rapport and personalization with customers, you as a merchant still need to remain vigilant. For instance, there is the potential for billing errors as well as payment stoppages due to account closures or credit card expirations. For these reasons, sellers need to carely monitor their recurring billing accounts, continuing to offer prompt customer service if issues arise and marshaling the necessary resources to retrieve those few late or stopped payments that do occur.
How to set up recurring invoices.
When getting started with this “subscription” model of invoicing, your first stop should be with your payment services provider. This is the company that has probably provided you with your point of sale (POS) system. Consequently, they are in the ideal position to tell you how to configure your POS system to accept fixed or variable payments.
As you are getting your recurring billing structure ready, it is recommended that you follow the following best practices.
- Configure your system to remind customers when their credit card is about to expire so that they can seamlessly provide you with their updated details without missing a payment.
- Offer flexible payment schedules, particularly if your products or services are pricey. In addition to once-monthly, give options for weekly and biweekly payments as well.
- Make it as easy as possible for customers to change or cancel their subscription program, providing them with easy-to-follow instructions when they sign up.
- Check to be sure that your systems (and those of any third-party companies you use) are PCI compliant. In other words, they should be in line with the Payment Card Industry Data Security Standard that protects cardholder data against theft and fraud.
No matter how effortless your subscription process might be, never forget that your success is built on personal relationships. Use the extra time automated payments have afforded you to maintain positive and dynamic communications with each and every valued customer.
No matter what you sell and regardless of the size of your enterprise, offering recurring invoices can provide you and your customers with numerous advantages. Talk with your payment service provider today to get started, and you will soon be reaping the rewards again and again.
