February is coming to an end. As we are about to turn the calendar page, we want to review one of the most fashionable concepts in the field of payments. What is a recurring payment, what is it for, how is it used, what are its advantages? We'll tell you all about it in this post. What we need to remember now is that it's an increasingly common system on platforms, as it allows you to pay a certain amount automatically on a monthly basis to access a product or service. Although some platforms do not have this system, they can access it by installing plugins.
Let’s get started!
What is a recurring payment and what is it for?
They are automated charges made periodically and are related to the charges for consumption of products or services. Subscriptions to Netflix, Spotify, or just your gym might be good examples of recurring payments. In short, you pay a monthly fee, for example, to receive a product or service on an ongoing basis. They are simple and very convenient payments for the number of advantages they offer:
- It allows you to estimate future income.
- It reduces the risks of non-payment.
- It increases the dwell time of each client.
- It improves cash flow.
- More scalable services.
- It simplifies the payment process.
- It increases sales in recovered carts in a short time.
- It builds subscriber loyalty.
- It requires little maintenance.
In addition, some payment providers allow the integration of recurring payments into CRM (Customer Relationship Management) or ERP (Enterprise Resource Planning), which makes it even easier to customise and automate payments.
Depending on the timeframe and the means, you will find some recurring payments or others. For example, they can be fortnightly, monthly, quarterly, or annual, as well as card payments, automatic direct debit payments, or wallet payments.
Can you imagine managing your business sales without having to intervene?
SEPA regulations and recurring payments
Did you know that recurring payments can be managed through SEPA? It establishes the obligation to sign a mandate acknowledging the agreement between debtor and creditor. In addition, the execution of the recurring collection must be stated and it is essential if you want to set up direct debit payments.
On the one hand, "If the customer signs a one-time payment mandate, you will only be able to debit his account once. And for subsequent charges, you will need to get a new signed SEP mandate authorising recurring charges." On the other hand, if this mandate is signed and you want to charge by direct debit, it is ideal that you follow this scheme in the XML file (Domiciled):
- FRST: in the first debit of a series of recurring debits.
- RCUR: in intermediate debits.
- OOFF: future attempts rejected
- FNAL: in the last debit of a series of recurring debits.
To conclude this section, we want to make a brief digression about the main differences between the one-time payment and the recurring payment. While a one-time payment is a one-off payment, such as card payment in a store, the recurring payment is made on a regular basis. For example, the monthly electricity bill.
In any case, it is essential to respect the payment sequence to avoid refunds or rejections by mistake.
The history of recurring payments in the world of subscriptions
The recurring payments model has taken hold in a number of industries, from PhotoShop to Atresplayer and other streaming and television services. In short, different types of companies have adopted such subscription model.
And while for business models it may mean predictable recurring revenue, for consumers it makes their lives much easier. It allows them to enjoy a variety of services and brings great benefits to businesses. They charge automatically and customers are responsible for authorising the business to charge them a certain amount.
Although it was not an uncommon payment method for brands, over the years it has gained a lot of visibility. It can certainly be a big boost for businesses with products that support the subscription-based model.
Here's how it works:
- The consumer chooses the recurring payment method to purchase a product or service.
- The consumer accepts the terms and conditions of the payment (fees, amount, schedule, etc.).
- The consumer provides his payment information (name, means, card number, etc.).
- And the payment is processed within the agreed period. Finally, the company will send the customer an invoice.
This is the process that recurring payments follow on a regular basis until the customer unsubscribes or the due date is reached.
3 types of recurring payments
There are many recurring payments that we can find and these are some of the most popular:
- Content (streaming apps, such as Atresplayer, Mitele, Netflix, Amazon Prime Video, or music services, such as Apple Music or Spotify).
- Water, internet, telephone or electricity services. Prices may vary depending on the rates contracted. They are usually paid on a monthly or bimonthly basis.
- Other service providers. For example, physical services such as home cleaning, your children’s tutoring services, attending dance classes, going to the gym, or other activities.
Do you still not have an invoicing software that allows you to enjoy recurring payments in your business? Are subscriptions the future of e-commerce? Would you like to know more about this system? Would you like to integrate it into your online store? Do you think it's the most suitable type of business for you? Are you clear about its advantages?
Tell us all your questions, in PayXpert, we help you solve them without any obligation.