Automatic recurring payment is – not only in my opinion – one of the best features of online payments. (Marketers like to use the term holy grail of SaaS.) It is a powerful tool indeed – both for the clients and the merchants.
But how exactly can one harness this whole potential? Will all of the payment methods available on the market bless you with the ability to make recurring subscriptions?
Swamped by Invoices No More
The customers are becoming more and more aware of the power that lies within a subscription that renews itself automatically. After all, using this model doesn’t require too much thought and the whole hassle of remembering to do stuff.
What’s more – there are clear advantages not only for the purchaser, but also for the merchant. Entrepreneurs can charge for their services and collect money regularly, without the necessity to ask for a renewal of the payment, while the clients don’t have to worry about an invoice slipping their mind ever again. Everybody’s happy.
Because it’s convenient and makes life so much easier, I imagine you will, at some point, want to start using recurring subscription billing model (if you already haven’t.) How exactly though? Can all payment methods roll with recurring billing? It figures: not all of them.
Paying in a Subscription Business Model
Methods that allow recurring payments are as follows:
- Payment and debit cards
- Direct debits
- Some of alternative payment methods
Card is the most used method of payment when it comes to recurring payments. It’s not popular by sheer accident; it is precisely because paying via card gives you the most possibilities. One of them is that the vast majority of payment cards enables recurring payments these days, provided that there are appropriate transaction limits set on them.
Assigned fees can be taken from the customers’ cards at irregular time intervals, in variable amounts. Additional formalities (in written form) for charging credit card owners are not required and – more good news – all sums of money are charged real-time (and therefore we instantly know if the fee was charged or not.)
Another payment method that seems to be simply made for recurring payments. It allows for the collection of funds straight from the clients’ bank accounts. At first glance it looks similar to a standing order, but there are some differences (the main being the fact that the procedure is initiated by the seller, not the purchaser.)
The customer’s main role in this process is to pre-authorize upcoming charges. Unfortunately though, in every country or region direct debits function a tad differently and, due to that, there are often varying requirements to meet. It may be necessary for the customer to make a permission in their bank.
In Europe there is SEPA Direct Debit available, which grants the possibility of withdrawing funds in EUR, from customers in the SEPA zone. It happens without card schemes involved, bank-to-bank.
Especially noteworthy: the expense is not collected real-time (it takes some time to find out if the account was charged.)
Alternative Payment Methods
Some of the alternative payment methods (e-wallets) also allow collecting fees periodically, in automatic form. A good example here is, e.g., PayPal, which offers such possibility.
With PayPal – setting up automatic subscription billing is really easy. Truth be told: you give up some of the control over the invoicing process, but in return you are able to reach those of your customers who prefer this form of payment.
Depending on the type of account and its verification, the method may enable collecting fees irregularly, in amounts that vary or are stable; it can, likewise, allow you to withdraw a set quote of money regularly.
Most of the time you won’t need any written permissions to collect money from your client’s account, and transferring funds via e-wallet will take place real-time.
How Periodic Payments Work
Let’s take a quick walk through the process.
Upon creating an account the customer often is offered a trial version of chosen service. During that time they test all of the service’s functions and decide whether it’s what they want and need.
The most usual way of charging is a monthly payment, but there are also other possibilities; you could collect fees annually, every two weeks, every week even! It all depends on your business model. There’s also an option to charge the customer for actual usage of the service instead of demanding a flat monthly fee; while using these metered (pay-per-use) services, the funds are withdrawn only when the client reaches a certain sum of money.
The data can be collected upon registration or after the initial trial expires. The customer then fills out the payment form with all the required data (if they are paying with credit card they’ll need to provide their name, the card’s number and expiration date, CVV and so on; if they are using their bank account – bank account number etc.) They can also be sent to their PayPal account, if that’s what their chosen method of payment is. With every payment period the recurring billing system charges the buyer automatically, without the need of obtaining once more the data necessary to carry out another transaction.
Usually the customer is able to have control over their subscription payments: they can change their price packet by upgrading or downgrading (in case there are different plans for the service) without ever having to give those permissions again.
Recurring Payments Are Awesome!
That about sums things up! With subscription model your clients can rest assured that their human forgetfulness won’t get them cut off from your service, be it a membership fee payment, access to news sites or a power bill. You yourself can forget about forgetting to send your customers a payment notice.
If you think through wisely all the ways in which you want to accept recurring payments and, consequently, choose just the kind of recurring billing software that you need, recurring fee collection will be a surefire hit.
You should also read: How to Use Subscriptions (Recurring Payments) in Your Business