Recurring billing has soared in popularity over the last few years, due to the rise in subscription services and companies offering a subscription or ongoing repeat payment element to their business model. We explore the key benefits of recurring payment processing and best practices to follow, with the spotlight on SaaS providers.
How does recurring payment processing work?
Before diving into the benefits and best practices, let’s briefly remind ourselves how recurring payment processing works.
Typically, recurring payments are monthly, but depending on the product or service, billing can be set up daily, weekly, bi-weekly, monthly, or even yearly - whatever has been agreed upon in the contract between the merchant and the customer. These payments continue until the customer chooses to stop them (or the repayments are finished, in the case of a loan or buy-now-pay-later scheme).
Here are the key steps in recurring payment processing:
- A customer subscribes to a product or service (such as a monthly cell phone plan) and enters their billing information.
- When the customer’s bill is due (say, on the first of the month), the merchant charges the customer for the amount stated.
- Working with a payment service provider (PSP – a third-party company that provides payment services to businesses that accept online payments), the merchant automatically collects the payment from the customer’s bank account via an electronic transfer, pre-authorized debit, or valid payment card.
- The funds are securely transferred to the merchant account (a specialist business bank account used for making and receiving payments).
- The recurring payment process continues until the end of the agreed contract period.
Are recurring payments the same as subscription payments?
Sort of. Both options offer a safe and seamless way to collect regular customer payments. However, recurring payments tend to fluctuate. So, in the example of the cell phone plan, if the customer made several long-distance calls during the month, their bill might be higher than the previous month.
Subscription payments, on the other hand, are fixed. When you sign up for a service like Netflix or Spotify, you know how much you’ll pay each month.
What are the key recurring payment processing benefits?
There are several major recurring payment processing benefits to be aware of, including the ability to accept payments faster and for increased ease and predictability. Plus, customers can enjoy a hands-off, seamless payment experience, which encourages them to stick around for the long haul.
Let’s look at these key benefits of recurring payment processing in a little more detail:
1. Faster payments
Recurring payment processing dramatically reduces the demand for manual intervention when collecting payments. And this is a huge benefit. There’s no need to reach out to customers asking them to pay their bills on time, and you don’t need to spend precious time and resources chasing payments.
So long as the customer has the funds in their account, and you have a reliable recurring billing system in place, everything happens automatically.
2. Convenience for all
There’s convenience on both sides of the transaction with recurring billing. Customers don’t need to re-enter their payment details every time they are making a payment. Once they’ve signed up for the product or service, they know their payment will be taken when it’s due.
Meanwhile, for merchants, it can help streamline the sales process. Instead of constantly re-engaging existing customers and reminding them to buy again, you can direct your Sales and Marketing teams to find and engage new customers.
3. Predictable revenue
Recurring billing benefits extend to revenue and cash flow. One-time, one-off sales are, by their nature, unpredictable. And this makes planning for the future far more challenging.
In contrast, recurring payments are predictable and reliable, meaning you can forecast revenue with greater certainty, manage cash flow and boost stability. Ultimately, this lets you make smarter business decisions in the pursuit of growth, allowing you to scale your SaaS company with confidence.
4. Customer retention
It’s a well-known fact that retaining customers is 5 times cheaper than finding new ones. And high retention rates mean reduced churn rates (the rate at which a company loses customers). That’s why customer retention is the Holy Grail for SaaS providers. It cuts customer churn and keeps revenue predictable.
By offering recurring payments, you can, in essence, “lock in” customers for a set period, or on an ongoing basis. Provided they value and enjoy your products or services, they’re less likely to cancel and look elsewhere - especially when unsubscribing can be a hassle.
Recurring payment processing best practices
To unlock the benefits of recurring payment processing, you must follow certain best practices. Otherwise, you won’t maximize your revenue potential, you may run into trouble and even turn away customers.
Below we outline some of the main recurring payment processing best practices to consider.
Your recurring billing process need to be optimized
One of the drawbacks of recurring payments is that customers can often “set and forget” their subscriptions, meaning they won’t always ensure they have the cash in place to pay their bills.
If a payment is declined due to insufficient funds (or for another reason, such as a technical issue outside your control), you need to ensure your process has some built-in safety nets.
To avoid a failed payment scenario, customers should be notified ahead of schedule that you’ll be taking payment from their account on a particular day. And in the event of a declined payment, your recurring billing system should be set up to try again after a few days (once again notifying the customer of the situation).
If you fail to optimize your process in this way, it could lead to “involuntary churn”, where a customer passively leaves due to an expired payment method or insufficient funds in their account. In other words, a reason not directly related to the quality of your product or service.
Your user terms & policies must be transparent
Customers need to understand what they’re signing up for, especially when it comes to payments. Try to be upfront about how things work and use plain, easy-to-understand language when describing your terms and conditions.
At a minimum, you should outline the following things:
- Your fees
- When and how often you bill your customers
- The timeframe for payment
- Accepted payment methods
- Penalties for overdue bills
Strong, transparent policies can help you resolve disputes, safeguard your business against fraud, and reduce the number of chargebacks linked to recurring payments.
Ensure your reporting & analytics are automated
Finally, the time saved by recurring payments can be quickly lost if reconciliation, reporting, and analysis are all still handled manually. This will negate the recurring payment processing benefits available to SaaS providers.
Your recurring billing system must offer a seamless and automated end-to-end solution, which can securely process payments at one end and provide actionable insights at the other.
Summary
To recap, recurring payment processing offers SaaS companies a faster, easier and more predictable way to accept regular customer payments. What’s more, streamlining the overall payment experience can also increase retention rates and reduce costly customer churn.
But to unlock the benefits of recurring payment processing discussed, you need to follow best practices and ensure your recurring billing system is watertight.
Use an experienced payment service provider for recurring payment processing
The best way to optimize your recurring payment processing and maximize the benefits is by partnering with an experienced payment service provider, like CardChamp. Our proprietary payment gateway, Transax, is set up to make recurring billing safe, simple and efficient.
Backed by our in-house technology and payment experts, we’ll help you take control of your recurring payment processing, boost cash flow and grow your business. Contact us today to learn more.
