Looking to set up a recurring payment system for your business?
We’ll explain what recurring payments are, how they can help your business and how to set them up. We’ll also go over some of the things that you have to keep in mind when using a recurring payment system.
What Are Recurring Payments?
Recurring payments are automatically deducted from a customer’s banking or credit-card account based on an agreed-upon schedule. If you’ve ever subscribed to services such as Spotify or Netflix, there’s a good chance you’re already familiar with how recurring payments work.
It’s another step toward making payments more convenient for both customers and business owners. The customers won’t have to bother with making payments every month and enjoy an uninterrupted supply of goods or services. The business owners, for their part, get a recurring source of income.
How Do Recurring Payments Work?
First, you’ll have to find a payment service provider that has a recurring payment feature and set up an account with them.
After it’s been integrated into your system, customers will be able to enter their banking information on your site. The account they entered will be used to deduct charges every time they reach the cut-off period.
About the Cut-Off Period
The cut-off period can be set by the business owner or left up to the customer. For example, some businesses bill their customers on an annual basis. But sometimes, they let their customers decide if they want to pay on a monthly, a 6-month or a 12-month basis.
All transactions happen electronically. There’s no need for the customer to pay with cash.
The payment service provider will handle the back end of the operation, meaning they will do the processing and depositing of payments to your account. Keep in mind that payment service providers typically take a processing fee off the transaction. This is how they usually earn a profit.
The recurring payments will continue until the customer decides to discontinue it.
What Kinds of Businesses Use Recurring Payments?
Recurring payments usually are used by businesses where products and services are supplied on a regular basis. Here are a few examples of businesses that can benefit from recurring payments:
- Subscription Businesses: If you have products that you need to deliver on a regular basis, you’ll need recurring payments. Businesses that fall under this category include magazine subscriptions, web hosting, subscription boxes (such as Birchbox or Blue Apron), entertainment services (such as Netflix or Hulu) and online tools (such as Ahrefs or Grammarly).
- Service Providers: You can use recurring payments if you offer services to regular customers. This would apply to lawn mowing companies, housekeeping, day-care centers, tutoring and utilities.
- Memberships: If you’re an operator of a spa, a gym or an organization that requires members to pay monthly dues, you can set up a recurring payment scheme so your guests can come in and out without having to wonder if they’ve paid their fees or not.
- Loaning: If you are in the business of loaning money, you can let your customers pay their fees automatically so they won’t have to worry about late payment penalties.
Setting Up Recurring Payments
Below are a few of the most commonly used payment service providers. We’ll show you how to set up recurring payments for each provider.
PayPal has the ability to handle recurring payments. If you use PayPal, you don’t have to pay monthly or setup fees. You just have to pay a transaction fee of 2.9% plus 30 cents per transaction.
Using PayPal’s recurring payment feature will require you to sign up for a PayPal Payments Pro account. This will set you back $30 a month (on top of all the aforementioned fees).
Once you’ve set up an account, log in. From your dashboard, go to Tools > PayPal Buttons.
Look for the Subscribe button from the list of options that PayPal provides and click it.
This will redirect you to a page where you can configure your payment details.
There are a number of details you could fill out, including how long the recurring fee will be implemented and the amount you want to bill your customers. After you’re finished entering all the required details, click Create Button.
PayPal will then provide a hypertext markup language (HTML) code that you can embed on your site along with instructions on how to do so.
You are also given a preview of what the button will look like once it’s live.
Square also has an invoice service worth considering. It’s 1 of the more reputable service providers in this space. Customers who have a credit or debit card on file can use their recurring invoice service.
Square also provides additional services, such as including discount codes in an invoice and a tipping feature. Square Invoice is free, but you’ll have to pay 3.5% per transaction along with a 15-cent transaction fee.
Here’s how you set up a recurring payment using Square:
From your main dashboard, click Invoices in the sidebar.
This will direct you to the Invoices page. Under the Invoices tab, select Create Invoice.
You’ll be redirected to the Customer Information page. Here you can select the customer and add additional details.
Enter the customer’s name and email. If the customer is already in your directory, you can select their name there instead.
If your customer has already saved their payment details, you can select which credit or debit card to deduct payments from under the Invoice Method.
If you don’t, you can send the invoice by email. You can select whether the payment is a 1-time transaction or recurring under Frequency.
Fill out all the details and click Schedule to finish.
How do you get a client to save their cards on your file? The first time you send your customer an invoice using Square, you can add an option for customers to save their cards on file.
When that customer receives the invoice and processes the payment, they can allow you to save their details by clicking the box that authorizes you to do so.
Stripe, a competitor of Square, offers a recurring billing feature for businesses. It charges you 2.9% per transaction and adds 30 cents on top of it.
Here’s how you set up recurring payments for Stripe.
The first step is to create a customer file if you haven’t added the customer yet in your directory. From the main dashboard, click Customers in the sidebar.
A pop-up window will appear. Enter your customer’s information here.
Once you’re finished, click Create Customer. In the sidebar, go to Billing > Product > New. Here you can add a product if you haven’t done so already.
Add all the necessary details and click Create Product when you’re finished.
On the next page, you’ll be asked to enter the pricing information for the product you just added. You can also specify if the payment is recurring quantity or metered. You can also set the frequency of which the customer is billed.
When you’re finished, click Add Pricing Plan. Now you can go to Billing > Subscriptions > New.
Under Select a Customer, search for the customer you just added. You can fill in all the fields under customer information. Click Add a Product and select the product that the customer ordered.
Once you add a product, new fields will appear which includes billing and billing method.
Fill out the remaining fields. You can add notes under Memo. This is useful if you want to clear up the rules and conditions of your services. You can also add important product information here if you wish.
Once you’re done, just click Start Subscription and you’re done.
Setting Up Recurring Payments
You’ll need to find a payment service provider to work with. Each provider has its own processing fee with some adding a monthly accounting fee on top of it.
You will need to do some research on which service provider to go with. But whatever provider you decide to go with, make sure that they comply with Payment Card Industry (PCI) standards to ensure the transactions are secure.
Keep in mind:
- Service providers are competitive. That’s why they offer features that help put them over their competitors. For example, some providers are able to process foreign currency. Make a list of features that your business can’t live without.
- Remember that your main goal is to make your customers’ life easier. Look for payment providers that accept all major credit cards. The more options you provide your customers, the more seamless their transactions would be.
- Don’t forget to look for a reporting feature. You’ll want to be able to download reports to keep up with all the transactions taking place on your site.