January 18, 2022 | Merchants | Dustin
A recurring payment is an automatic transaction from a customer to merchant that occurs periodically. It’s often used as a convenient way to secure payments for goods or services by companies who have monthly billing. As a customer, if you’re paying for an online streaming service like Netflix or using a yearly ecommerce store service like Amazon Prime, you’re being charged via recurring billing.
How is a recurring payment billed?
Recurring payments are billed based on the terms of the respective contract. Moreover, the contract is not cancelled until the customer informs the merchant.
Many companies prefer the consistency of monthly billing. Although, there is sometimes a premium for a product when a customer chooses to break down payments that may be discounted for a single yearly payment. Nonetheless, monthly billing is a convenient way to afford ongoing services for both the merchant and customer.
Recurring Payment Platforms
If you’re a merchant looking for a recurring payment platform, you’ll want to find one that has the flexibility to support your business. Some platforms come with different features such as fraud protection; all should be PCI compliant in order to secure user data.
The benefit of recurring billing is vast. You are able to predict and monitor your income more steadily and scale your business with a higher probability of retaining customers. Attrition is a main factor recurring payment models consider. This is defined as the time or rate which a business loses existing customers. To ensure your business grows, your new customer rate should be greater than attrition rate.
How to cancel a recurring payment?
Many people have issues with ongoing bills for recurring payments they may no longer need to make. This is one of the benefits to the merchant using them. They often receive payments from customers who may not use services or may simply want to retain them as a convenience.
For example, gym memberships are often paid through recurring billing. They come with steep cancellation fees or require months of notice upfront before getting out of a contract.
Here are some pointers on how to approach a review of your spending on recurring payments:
- As a customer, a good way to audit your monthly spend is to look at your billing statements and see which payments are made each month.
- Find out which monthly services are essential and cancel the others that might not be used as often.
- Look up your contract with each company because the terms are always different. Some may reimburse you for months you haven’t used a service, while others may make cancelling more difficult.
One strategy some companies use to decrease cancellations is to enforce direct contact. They may require a customer to call in order to cancel. This increases the time and effort on the customer which plays into the companies benefit. Additionally, it allows a representative to record the reasons why you want to cancel and make offers to try to retain the business.
Recurring Payments vs Continuity Billing
Continuity billing is often confused with recurring payments, but describes a separate payment model. In continuity billing, a customer orders a product (usually a free-trial) and must opt-out in order to not get billed. Some nutraceutical companies use this approach to keep inventory moving to the hands of potential customers. They may offer a free sample and charge you weeks later if you don’t return the product.
Risk Involved with Auto Pay
Customers may forget about the types of payments they automatically make. So, although there is a benefit in seamlessly taking payments, there may be the occasional customer who wants a refund or will file a chargeback.
Nonetheless, recurring payments reduce the burden on staff and bring faster more secure means of processing for ongoing services.
January 18, 2022 | Merchants | Dustin