Recurring payments, or also known as Autopay or continuous payment authority (CPAs), is in the instance a customer has authorised a retailer or merchant to collect payments for goods or services used on a regular basis from the customer’s bank account or credit card. The customer must give permission upfront and the merchant can collect any amount of money at any time if it feels its owed. Therefore, a due date must be agreed upon for the payments, although the consumer has the legal right to cancel, and retract permission for the auto-payments at any time. The company will require the long card number for this, instead of the bank account number and sort code.
Recurring payments enables companies to sell products and services automatically, and customers to not have to worry about forgetting to pay and incurring late fees. This often means that companies and customers can predict their cash flow and budget with more accuracy. Although, recurring payments can be a nightmare if unchecked and they provide less control for the customer in comparison to direct debits. This is because you rely on the bank or retailer to take or cancel payments, whereas a direct gives you control about what goes in and out of your account, at a fixed variable price. In addition, the Direct Debit Guarantee ensures you’ll be refunded by the bank if an error occurs. If you’re considering recurring payments for your business, there are a few things you should consider:
Be attentive when shopping for the right recurring payment platform as you’ll need a subscription provider that adheres to industry standards for payment security, such as PCI compliance (Payment Card Industry). Your platform will need to be flexible to your customer base. For example, if you receive a lot of international payments, cross-border compliance, AML and anti-fraud have established processes to protect your and your customer’s payments. There are certain regulations that will specifically apply to certain currencies when being transferred across nations so ensuring your platform is set up to receive international payments is essential.
Recurring payments will help your business reduce expenses for bill collection efforts, as this process is automated. So not having to use staff time or hiring positions for this purpose can ensure your business isn’t wasting time or money. Being certain you will receive payments on time will also benefit the company’s budget and investment plans as you’re able to predict cash flow more accurately and successfully. However, be cautious your recurring payment system doesn’t require a complex and costly integration process to implement into your business.
Being flexible to the payment methods your customers want to use when shopping is an important aspect for any online merchant store. Being able to receive transactions from the basic payment methods is considered the bare minimum now. Having relationships with banks that facilitate AutoPay is the best way to go when implementing recurring payments for your subscription service.
Churn rates are the average metric rate at which customers discontinue their business or subscription with you. A healthy rate is usually reliant on your industry and bespoke service, but for a healthy business model, your annual growth rate needs to surpass the annual churn rate. This subscription model of recurring payments can provide insights to improve your churn rate, improve conversions by encouraging customers to apply for multiple plans, and analyse your customer retention against competitors and the market standard.
In light of churn rates, there is a risk with recurring payments to have a negative impact on customer retention. If you do implement recurring payments and find that there is a clear impact, it’s probably worth reconsidering the overall business success. A successful method for many companies is by offering up an initial free trial for customers. While some customers like the ease of recurring payments, particularly for essential, fixed price monthly bills. This enables them to rest assured their bills are paid. Additionally, due to the opportunities for higher customer retention, your business may be able to build a more loyal customer base. We advise selling cheaper products with a fixed maximum to ensure customer trust.
Understanding your payments is always important when running a business. Without adequate reports, your business will struggle to identify growth opportunities or areas to improve. For example, churn rate and transactions will be an important measure for the success of recurring payments, so your chosen platform should include such insights. Recurring payments exist to ensure you can focus on more important things, so it’s reports should be just as efficient.
Contact Imburse Payments to learn more about how you can make the most of your payment model and find a bespoke solution for your business. Our professional team is available to help.