If you are starting or moving your business to a subscription-based model, you need to choose an appropriate recurring payment plan to accept payments from your customers at regular intervals. Recurring payment, also known as automatic electronic payment is a payment model where a certain amount from the customers’ bank or selected payment method is deducted every month or year. Customers are asked to complete the authorization form where they agree to pay the company a specific fee according to a preset schedule in order to continue receiving the services or membership benefits.
Take Netflix and Amazon Prime, for example. These companies offer live streaming services for movies and web series lovers and charge a specific fee on a monthly or yearly basis. There are many similarly subscription-based service providers that have collaborated with reputable payment processors. Not only do you need to work with a payment processor, but for processing such types of recurring payments, you are supposed to use the software system for recording and managing the automatic payments seamlessly.
How Do These Systems Work?
As mentioned above, many software providers offer a vast range of features that enable easy management of payments and billing. Although these systems come with a varying price range, they offer the same benefits and work in a similar way. Customers sign a one-time authorization form and accept the timely payments for continuing to receive the specific services.
They sign up for the recurring billing model and are charged at regular intervals, whether it’s a quarterly payment system or a monthly subscription plan. Your customers’ credit/debit card details or other financial information is saved in the system and used for processing automated payments at specific intervals. They don’t need to enter the financial information repeatedly, as the payment is deducted directly from their accounts unless they cancel the subscription. Here are the steps for how the system works:
- Customers enter their card details when signing up for the membership or particular service on your website
- Their card details are saved on your device for processing future payments
- They give permission to store this information and deduct a specific amount from their accounts at regular intervals
- The saved data is then used to process the recurring transactions
How to Setup the Recurring Billing?
First things first, you need to select a suitable payment method that supports the recurring billing model. PayPal is often the users’ first choice, as it is one of the most reputable payment processing companies out there. However, PayPal charges a high fee per transaction. There are plenty of options and most of them have the same recurrent billing process. The setup part is also the same for most software systems, but to explain it to you in detail, we have used Square.
Square has a secure and robust payment vault where customers can save their credit/debit cards and other financial information securely. You can send the invoice for their purchase through email and they can open Square’s payment page through the link.
They can process the payment following the link or the merchant can do it on the customers’ behalf using the virtual terminal. Square and other recurring billing software systems trigger automated payments, where the amount is charged to the customer directly. They don’t have to enter their credit card details repeatedly when renewing their subscription plan. The amount is deducted either directly or they are asked for a confirmation message so that they can decide whether they’d like to renew the membership or end the plan.
The process is pretty fast and convenient. It doesn’t really need hectic management or a complex setup. Once you are done with the setup part, the system will automatically start storing customers’ financial information and charge them the fees with the add-ons (if they have purchased any).
What is the Processing Fee?
These automated invoicing apps charge a small percentage of the transaction cost as the processing fee. The fee structure varies from company to company. For example, Square charges a 3.5% fee on every transaction, plus 15 cents for all the recurring payments. This means a $100 transaction costs you a flat fee of $3.65.
The best part is Square doesn’t charge any additional fee for account maintenance or any other hidden charges. If you choose other recurring billing systems, you may have to pay an additional cost for account maintenance.
Who Needs the Recurring Payment Model?
For any business that charges a regular fee for the membership or any type of service, the recurring payment model works wonders. Let’s see who needs to set up the recurring payment system for their business.
- Tuition: If you offer tuition, fitness training, music or dance classes, yoga classes, and other types of services, you can charge a monthly recurring fee.
- Service Providers: If you provide house cleaning, lawn maintenance, personal training, therapies, counselling, and other similar services, you could charge your customers in batches or individually – whatever fits your preference.
- Memberships: memberships are required for gyms, fitness centres, blogging sites, and other services. For video streaming services, a membership is required to continue using the services. As mentioned in the above example, a subscription-based model is an ideal payment system for such membership plans.
In a nutshell, if you are in any business that requires recurring payments where customers are to be charged at regular intervals, the subscription-based payment invoicing model is your best bet. These software apps can either group customers into a specific batch or charge each one individually. The goal is to make it easier for your customers to process the payments flawlessly.
Bottom Line
The main purpose of the recurring billing system is to streamline the payment processing for your customers. These services are designed for membership or subscription-based service providers. Not only does it make it easier for your customers to process the transactions in simple clicks, but it offers you the convenience of managing the payment records in the most efficient way.