A recurring payment, also known as a subscription payment, is a transaction in which a customer authorises a business to automatically charge their account at regular intervals for a specified amount. This payment method is commonly used for subscription-based services or products, where customers pay a recurring fee to access goods or services on an ongoing basis.
To collect recurring payments from your customers for a subscription service, you would need to choose a suitable payment method (e.g., Direct Debit, credit card, online payment platform) and implement the necessary infrastructure to automate the payment process. It’s important to communicate clearly with your customers, obtain their consent, and ensure that your chosen payment method complies with relevant regulations. Additionally, providing an easy way for customers to manage their subscriptions, such as canceling or modifying them, is good practice for customer satisfaction.
So let’s explore how you can get started with recurring payments
What are recurring payments?
Recurring payments differ from other payment types in a few ways:
- Regular Intervals: Recurring payments occur on a predetermined schedule, such as monthly, quarterly, or annually. The frequency depends on the terms agreed upon between the business and the customer.
- Authorisation: Before initiating recurring payments, businesses typically obtain explicit consent from customers. This authorisation can be in the form of a signed agreement, online acceptance, or other methods, depending on the payment method and applicable regulations.
- Automated Processes: Recurring payments are processed automatically, eliminating the need for customers to initiate each transaction manually. This convenience is a key feature for subscription-based businesses.
- Consistent Payment Amount: The amount charged in each recurring payment is usually fixed, providing predictability for both the business and the customer. However, in some cases, variable amounts may be agreed upon.
Common examples of businesses that use recurring payments include subscription services (e.g., streaming platforms, software as a service), membership-based organisations, and utility services.
What are the recurring payment methods?
There are several different methods available, here are the most common methods:
1. Direct Debit
Direct Debit is a popular method for recurring payments in the UK. It allows you to automatically collect funds from your customers’ bank accounts.
- Pros: Reliable and widely accepted. It’s regulated by the Direct Debit scheme, providing protection for both businesses and consumers.
- Cons: Requires a Direct Debit mandate from your customers.
2. Standing Orders
Standing orders are automated, fixed-amount payments set up by your customers with their bank.
- Pros: Predictable and can be a simple option for fixed recurring amounts.
- Cons: Lack of flexibility for varying amounts. Not suitable for variable payments.
3. Card Payments (Recurring Billing)
You can set up recurring payments using credit or debit cards. This can be done through payment gateways that support recurring billing.
- Pros: Offers flexibility for varying payment amounts. Convenient for customers with credit/debit cards.
- Cons: Some customers may change or expire cards, requiring regular updates.
4. Online Payment Platforms:
Platforms like PayPal, Stripe, or GoCardless offer recurring billing options.
- Pros: Easy integration, various payment methods, and subscription management features.
- Cons: Transaction fees may apply.
5. Invoice and Bank Transfer:
Send recurring invoices to customers, and they manually initiate a bank transfer.
- Pros: Direct bank transfers can be cost-effective.
- Cons: Less automated, and you rely on customers to initiate payments.
Which option is best?
The best option depends on your business model, customer preferences, and the nature of your services or products. Direct Debit is often recommended for its reliability and regulatory framework, but card payments and online payment platforms offer convenience.
How do you get started?
There are a few steps you will need to follow, but typically they will look like this:
- Legal and Regulatory Compliance: Ensure that your chosen payment method complies with UK regulations, especially if you opt for Direct Debit.
- Select a Payment Provider: Choose a payment provider that aligns with your business needs. Consider factors like fees, ease of integration, and customer support.
- Integration: Integrate the chosen payment method into your website or billing system. Most providers offer developer documentation to guide you through the process.
- Communicate with Customers: Clearly communicate the recurring payment process to your customers. Obtain necessary authorizations and provide information on how to cancel or modify subscriptions.
- Test Transactions: Conduct test transactions to ensure the system works smoothly before implementing recurring payments.
Remember to keep customer data secure and comply with data protection regulations such as GDPR. If in doubt, consider consulting with a financial or legal professional to ensure compliance and to tailor the solution to your specific business needs.
Choosing the appropriate Direct Debit company for your business can streamline payment processes, enhance cash flow, and facilitate business growth.
If you’re looking for a new Direct Debits provider, that offers great value on collections, superior customer service and a reliable system for collecting payments, contact us today.