What are Recurring Payment Solutions and How Do You Implement Them 

Think Netflix, Adobe, Udemy, Amazon Prime, and your local gym. What do they all have in common?

They’re all subscription-based businesses. 

They rely on recurring payments.

The recurring payment economy is one of the world’s fastest-growing economies. According to a recently released Recurring Payments Market report by Fact.MR, the market is expected to grow at a rate of 6.9% and reach USD 268.7 million by 2033.

This growth can be attributed to changes in customer preferences. Customers now prefer instant access to products or services and would rather rent or lease them instead of buying them outright.

As such, your business is likely to adopt recurring payment solutions to help you handle recurring payments from your customers.

This guide explains what recurring payment solutions are, the key features to look for when purchasing one, and how to implement a suitable solution for your business.

TL;DR

• Recurring payments are transactions charged on a predetermined basis and at set intervals. Recurring payment processing solutions are the systems merchants use to automatically bill recurring payments from their customers.
• Some key features of recurring payment solutions include automated billing and invoicing, payment method flexibility, dunning management, customer management, and security and compliance.
• While there are many payment processors to choose from, you need to partner with one that provides recurring payment features that meet your business needs.

What are Recurring Payment Solutions?

Recurring payments are transactions charged on a predetermined basis and at set intervals. They’re ongoing payments made by customers to businesses or merchants for a service or product.

Recurring payments are also known as automatic payments, auto-debit, or subscription payments.

There are two main categories of recurring payments, namely:

• Fixed recurring payments – Also known as regular recurring payments, these are recurring payments where regular exact amounts are charged to the customer’s account at predetermined intervals. An example of a fixed recurring payment is a monthly subscription to a streaming service.
• Variable recurring payments – Also known as irregular recurring payments, these are recurring payments where the amount charged to the customer’s account can vary based on the customer’s usage and consumption of the specific product or service. Utility payments for water and electricity are examples of variable recurring payments.

Recurring payment processing solutions are the systems merchants use to automatically bill recurring payments from their customers. Instead of customers manually initiating payments every cycle, they authorize the merchant to automatically charge their bank accounts through recurring payment solutions.

Recurring payment solutions are mostly used by subscription-based businesses, such as SaaS companies, streaming platforms, eCommerce & DTC, gyms, and utility companies.

Benefits of recurring payment solutions for businesses

Adopting recurring payment solutions has various benefits for businesses. They include:

Predictable revenue streams

It’s essential for businesses to know how much money will be coming in at any specific time. But most businesses can’t predict revenue streams since sales cycles may fluctuate from season to season.

However, recurring payments help stabilize your business’s sales cycle and make your revenue predictable. When you have a baseline of customers making regular payments to your business, it’s easier for you to estimate income.

While it’s a bit hard to calculate the exact amount due to failed payments or subscription cancellations, you might get a rough estimate of your cash flow.

For example, if your business has 1,200 customers making recurring payments of $99 every month, you can estimate a base revenue of $118,800, even before adding one-time and single sales.

This can make it easier for you to forecast business growth, pay suppliers, and pay any loans or debts.

Improved customer retention

Customer acquisition costs are considerably higher than customer retention costs. Focusing on customer retention over an 18-24-month period can increase business revenue by up to 80%, reduce customer acquisition costs by 30%, and increase the number of customers by 1.5x.

One way to improve customer retention is by implementing recurring payment solutions. In essence, recurring payments ‘lock in’ customers for a specific period or on an ongoing basis. 

If they’re happy with your products and services, they’re less likely to consider your competitors, especially when unsubscribing proves to be a hassle.

Enhanced customer experience

Recurring payments provide an overall better experience for your customers. It simplifies the process of making regular payments. They don’t have to manually initiate the transaction and re-enter payment details every time a payment is due.

Once they’ve agreed to recurring billing, they don’t have to remember to make timely payments. Their subscription, delivery, or access remains uninterrupted.

Key Features of Recurring Payment Solutions

A robust subscription billing solution should have the following essential features:

Automated billing and invoicing

Maintaining a seamless recurring payment processing workflow is hard when relying on manual billing and invoicing. Having one of your sales team manually generate invoices, send them to your customers, and handle admin work would take forever and have multiple errors.

That’s why a recurring payment solution should leverage automated billing and invoicing. An automated recurring billing system can save you thousands of hours and seal any revenue leaks in your workflows.

An automated billing and invoicing system should handle the following:

• Prorations – Your recurring payment software should have the capacity to adjust the bill amount should any of your customers change their subscription in the middle of the billing cycle. It should reflect any subscription changes and only charge the customer for the billable period.
• Discounts and coupons – If you want to offer your customers discounts and coupons, your billing software should integrate them into the relevant plans without interfering with the workflows. The discount should also be reflected on the invoice.
• Grandfathering – Businesses regularly change their pricing strategies as the business scales.  Grandfathering allows you to continue charging your old customers at the old price (which they subscribed for) and apply the new price to the new customers. The solution should apply this with ease.
• Calendar billing – Automated billing should allow customers to select or change their billing date based on their financial cycles.
• Flexibility – An automated billing and invoicing tool should be flexible when it comes to recurring payment models. Whether your business adopts fixed recurring payments, variable recurring payments, or a hybrid of both, the solution should handle it effortlessly.

Payment method flexibility

According to a 2023 survey by Bizrate Insights, 21.87% of customers would spend more money if offered flexible payment methods. Diversifying payment options could make the difference between customer churn and retention.

Flexible payment options allow your business to accommodate more customers with varying preferences. Your recurring payment solution should offer them more freedom and control to choose between credit & debit cards, digital wallets, Automated Clearing House (ACH), or bank transfers.

By offering payment methods that your customers already use and trust, you eliminate any barriers to customer retention and subscription adoption.

Dunning management

As your business scales, you’re likely to experience billing and payment issues. Failed payments are one of the top concerns for subscription-based businesses. In fact, they’re estimated to cost the global economy US $118.5 billion annually. 

That’s why you need a strategy to handle failed payments. While you don’t want to freeze your customers’ accounts too fast, you also don’t want to be too lenient. This is where dunning management comes in.

Dunning management is an automated payment recovery strategy that sends a notification to a customer when their charge fails. The notification is sent via email, text message, or in-app notification.

Recurring payments can fail due to several reasons, such as card expiry, payment authorization failure, card limits, outdated card information, or blocking by the card company upon the owner’s request due to theft.

Dunning management takes several steps to handle failed payments:

• Payment retry – Once the customer has been notified of the recurring payment failure, the system retries the billing to recover the payment within a specified time. The number of payment retries varies based on the system. However, the standard is a minimum of three retries within three to five business days.
• Pre-dunning – In this approach, customers are notified in advance if their credit cards are about to expire and are requested to update new card information before the billing date
• Escalation process – If the two steps above fail, the account is escalated to a collection recovery agent to contact the customer directly. Collection recovery agents negotiate payment plans and resolve payment issues respectfully.

One major benefit of dunning management is that it avoids involuntary churn. Without dunning management, customers are locked out of their accounts when payments fail. Dunning management helps retain customers who still want to do business with you.

Customer management

A recurring payment solution should also be a subscription management platform. It should just automate billing and payments. It should also give your customers essential account management functions.  

Customer management functions help businesses increase customer satisfaction, cut down on support costs, and streamline their operations. 

Here are some key customer management features to look for:

• Account management – The billing software should allow your customers to update their personal and billing details, view their subscription plans, and manage payment methods.
• Subscription plan modification – Your customers should be able to upgrade or downgrade their subscription plans and make adjustments to their accounts based on their changing needs.
• Payment history – Your customers should access their billing and payment history and see their past invoices and receipts. They should also see upcoming payments, unpaid invoices, logs, and orders.
• Cancellation and renewal – Providing subscription cancellation and renewal options simplifies the process of making these decisions for your customers. 

Security and compliance

Recurring payment solutions deal with a lot of customer data. Due to the sensitive nature of the information, you should ensure that you choose a subscription payment solution that complies with industry standards and regulatory requirements.

Here are some data security features to look for:

• Data encryption – Data encryption is the translation of data into code or special characters that can only be read by users with authorized access. Authorized users read encrypted data using a decryption key. This feature ensures that even if the system’s security is breached, the hacker or attacker can’t understand the data.
• Audit trails – An audit trail is a chronological record that allows financial data to be traced to the source. It’s a record of all user activity within the system. Audit trails enhance data security and make monitoring easier. In case of a security breach, audit trails can be used to determine different elements of the breach.
• User access control – Businesses should be able to assign system control based on user roles. For example, a sales representative accessing a recurring payment solution with user access control wouldn’t have access to customer payment details.

On top of these data security measures, the software billing software should comply with financial and data security standards. 

They include the General Data Protection Regulation (GDPR), the Payment Card Industry Data Security Standard (PCI DSS), and the Accounting Standards Codification 606 (ASC 606).

How to Implement Recurring Payment Solutions

Here’s a step-by-step process to help you implement recurring payment solutions for your business:

Step 1: Choose the right payment processor

A payment processor is a third-party payment services provider that integrates the needed payment technologies into your business. They provide credit card payment processing and give you access to other payment options, such as ACH transfers and digital wallets.

The payment processor connects your business to the customer’s bank using a payment gateway, to seamlessly facilitate recurring payments.

While there are many payment processors to choose from, you need to partner with one that provides recurring payment features that meet your business needs.

On top of the key features of a good recurring payment solution we’ve already looked at, here are some other factors to consider:

• Pricing – The payment processing fees are a primary consideration. While you want to invest in the right platform, you don’t want one that will significantly eat into your profits. Most payment processors typically charge a percentage of the transaction amount, varying from 1% to 5%. Others adopt a flat-fee pricing model. Compare pricing from a few payment processors and consider how they might affect your profit margins.
• Integration – You want a payment processor that seamlessly integrates with your website, mobile app, or eCommerce platform. You also want one that works well with other business tools, such as customer relationship management (CRM) systems and accounting software.
• Customer support – Find a payment processor that offers 24/7 customer support, whether through email, phone, or live chat. Also, consider whether they provide other additional customer support resources, such as video tutorials and documentation.
• Payment speed – The speed at which the payment processor processes transactions can impact your cash flow. Different payment processors offer different processing speeds. Also, consider how long the processor holds the funds before sending them to your bank account.
• Scalability – You want to partner with a processor that accommodates your business growth. Look for a processor that provides customized payment solutions, supports high transaction volumes, and allows integration with other additional tools you might need.

With so many payment processors in the market, it might be overwhelming trying to sift through the good and the bad. But Stax Bill provides robust features to help you efficiently manage your recurring payments and subscriptions, whether yours is a startup or a large enterprise.

Step 2: Set up recurring billing

Once you’ve decided on a suitable payment solution, it’s time to set up recurring billing. The setup process ordinarily looks like this:

1. Sign into your preferred platform and create a merchant account
2. Set up the needed payment field, such as the description of the products or services you’re selling and the price of those products or services.
3. Create customer profiles for your target customers and provide important details about them, such as name, contact information & email address, and payment details. Customers will be automatically asked for these details when they sign up to make an online purchase.
4. Set up your pricing model. You can create several plans with different pricing tiers, billing cycles, and currencies. Also, create automated billing templates that will trigger regular payments
5. Test the system to ensure it’s working as expected and then start collecting payments from your customers
6. Regularly monitor your customers’ data to ensure that all necessary information is properly stored and updated
7. Manage subscriptions by upgrading or downgrading subscription plans, applying discounts, or canceling subscriptions when needed. 

Step 3: Integrate with your existing systems

A suitable recurring payment solution is only as good as it integrates with your existing systems. You need your CRM, ERP, recurring billing software, and other systems to collaborate seamlessly while also bridging any business workflow gaps.

You should ensure your recurring payment solution integrates with your business website and other systems in your tech stack through an Application Programming Interface (API).

An integrated gateway helps you automate the entire payment process and eliminate most of the manual work involved in accepting recurring payments, such as:

• Compiling and reconciling invoices
• Posting payments
• Updating ledgers

Once you’ve integrated your subscription billing platform with your other systems, you should test the integration to ensure smooth operation.

Stax Bill’s powerful API integrates with various essential business tools including Salesforce, HubSpot, NetSuite, QuickBooks, Avalara, Digital River, and Geotab, among many others.

Step 4: Communicate with customers

Clear communication helps build customer trust and avoid disputes and conflicts. One aspect of clear communication is transparency when it comes to billing and subscription terms. 

Ensure your customers understand the terms and conditions of the subscription billing, such as the subscription amount, billing cycle, payment methods, and how they can upgrade, downgrade, or cancel their subscription.

While this may largely be based on your pricing model, consider other factors, such as late payment fees, interest, and payment processing fees.

Also, it’s not uncommon for busy customers to forget to make timely payments. Send automated reminders and notifications when the payment date is near to keep them up to date. 

Should a payment fail, send automated email notifications to the customer to inform them of the failed payment and remind them to update their payment details. 

Ask yourself these questions—will you send the customer a bill or will the payment be automatically charged? Is the subscription auto-renew or will it need the customer to renew?

Answer these questions and communicate the answers clearly to the customer.

Don’t forget that your customers also need excellent customer support. Train your support team to handle queries promptly and efficiently resolve issues at all times.

Step 5: Monitor and optimize

Adopting the subscription billing software isn’t the end of the journey. It’s a continuous improvement process that you should prioritize to maximize the effectiveness of your recurring payment solution. 

Regularly monitor the performance of the recurring payment solution. Track the success rate of the payments, customer feedback, the frequency of failed payments, customer retention, and any common issues.

Analyze your business’ trends and patterns based on customer behavior. This can help you spot potential improvement areas to refine your business practices.

Don’t stop there. Optimize your business based on these analytics, customer feedback, and evolving business needs. Ensure that the solution aligns with your strategic business objectives.

Also, experiment with different billing strategies, subscription plans, promotional offers, and discounts, to find what resonates with your customers.

Embracing a data and analytics-driven approach when making business decisions can help you maximize better results in the future.

Challenges and Best Practices

While there are multiple benefits of recurring payment solutions, there are several challenges and considerations to be aware of. 

Here are a few:

Managing failed payments and minimizing churn

Failed transactions are likely to happen with recurring payments. For businesses with hundreds of customers, it’s difficult to monitor each transaction and identify failed payments. This presents a risk of passive involuntary churn when payments fail and the transaction can’t be completed.

Pre-dunning has been proven to be effective when it comes to preventing passive churn. While other dunning strategies are also effective, some payment failures may take days to be resolved.

Also, have backup payment methods that your customers can use as alternatives if their primary payment methods fail.

Ensuring compliance with regulations

Complying with industry standards and regulations, such as GDPR and PCI DSS is crucial for data security. Non-compliance can damage your business’s reputation and attract heavy fines and penalties.

The solution is to partner with a payment service provider that complies with the relevant standards and regulations.

For example, StaxBill’s tools and features are all GDPR, PCI DSS, and ASC 606 compliant.

Customer communication and support for subscription issues

Subscription customers have an ongoing relationship with your business and have different subscription and customer support needs. Some subscription issues they may face include updating payment information, changing their subscription plan, and upgrading, downgrading, or canceling their subscription.

They might also need clarification about the features and tools available in their subscription plan, especially if you have multiple plans and add-ons.

You need to have a robust customer support team that promptly communicates with customers, helps them understand their specific needs, and customizes their subscriptions according to their needs.

Best practices for handling subscription cancellations

Just because customers subscribe to your products or services doesn’t mean they’ll stick with you forever. Every month, they have the option of spending their money elsewhere. 

But that doesn’t mean you should do nothing about it. You have to be proactive and implement subscription cancellation strategies.

You can implement exit surveys, also known as churn surveys, to collect their feedback and use it to improve your current product, improve the experience for your current customers, and prevent churn in the future.

Also, have a refund policy to resolve disputes fairly and efficiently. This minimizes the risk of customers raising disputes and chargebacks with their banks. Chargebacks are more expensive than refunds

Conclusion

Recurring payments are automated payments businesses regularly receive from their customers at predetermined intervals. With a recurring payment solution, your business avoids the hassle of invoicing, recording, and manually tracking recurring payments.

While the benefits of adopting subscription billing software are quite enticing, the key lies in finding a suitable solution for your business. Evaluate your business needs and get one that aligns with your objectives.

At the end of the day, remember you want a solution that allows you to monitor and track everything under one roof. This calls for a tool that seamlessly integrates with other business systems. StaxBill is an example of one such tool. Contact Stax Bill today to learn more.