How to Accept Recurring Payments

What are recurring payments?

Recurring payments are any credit or debit card payments that your company receives on a regular basis automatically. They’re different from a customer or client handing you their card or filling in their information online every time they make a purchase or renew your services. Instead, your third-party payment processor keeps the customer’s or client’s payment information on file and charges it on a recurring basis.

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Recurring payments can happen monthly or annually as is common in small business affairs. Less commonly, recurring payments can occur weekly or daily. You also have the option to let recurring payments go on forever or end them after a certain date.

How do you accept recurring payments?

Recurring payments work through your business’s third-party payment processing company. These third parties enable your business to accept credit card payments or payments via debit card. There are also two kinds of payment processors: payment service providers and merchant accounts. The former oversees all processing, securing and depositing of your customers’ or clients’ funds. The latter is solely for depositing funds.

In either case, your payment processing company will trigger a recurring payment by contacting your bank. The company will then contact your customer or client’s credit or debit card network as well. Thereafter, the network will check with the card’s issuing bank to see whether the transaction is valid and funds are available. 

If all appears legitimate, the network will approve the transaction with your payment processor. After a one- or two-day hold to counter fraud, you’ll have your funds. Some payment service providers eliminate this hold period, though this advantage comes with extra fees.

Types of recurring payment structures

Typically, recurring payments fall into two broad categories, both of which have a few subcategories.

1. Fixed recurring payments

Customers or clients who make fixed payments send you the same amount of money with each payment. Common examples include monthly donations to nonprofits or subscriptions to publications. They also include customer product subscriptions as the shipping fees you pay or defer to the customer shouldn’t change between orders.

2. Variable recurring payments

Variable payments are less common than fixed ones, although you’re likely familiar with them from both your business and personal life. The most obvious example is your utility bills. Surely, you’re not using the same amount of electricity, gas or water each month. As such, your monthly costs will vary, as will the size of any recurring payments you’ve made. 

In small business, most products and services are constant in pricing, so variable recurring payments are infrequent. However, for service providers whose offerings vary in quantity, such as a tutor who sometimes provides two hours of tutoring instead of one, variable recurring payments may be better.

What are the benefits of accepting recurring payments?

These are some of the benefits of accepting recurring payments:

• Fewer late or missed payments: Let’s say your customers or clients pay you regularly. With recurring payments, the customer no longer has to remember to pay you. Instead, they’ll have their funds withdrawn automatically and sent to you. The result is the near-elimination of late or missed client or customer payments.
• No need to ask customers or clients for payment: Every small business owner likes earning money, but few enjoy pestering clients for payment. With recurring payments, you’ll get your money automatically without having to ask for it. That means greater cash flow and fewer headaches.
• Easier accounting and invoicing: Often, recurring payment platforms can integrate with your accounting and invoicing systems. In this case, a recurring payment can trigger the creation of an invoice and the recording of a credit in the appropriate general ledger account. That’s less work for you and more accuracy in your billing and accounting.
• Easier accounts payable (AP) for clients: When clients know their funds will be withdrawn on a certain date, they don’t need to check their AP to square up. Instead, they can sit back and watch as their AP is credited and their cash account is debited. Plus, if their accounting, invoicing and payment processing are integrated like yours, then your recurring payments will truly perfect their operations.
• Hassle-free restocking for customers: Let’s say you operate a business-to-consumer company that sells tangible products that become unusable after a certain period. Your customers will then have to find the time to buy new products from you. Recurring payments solve this problem. They automate customer payments and the addition of new customer shipments to your inventory management software.
• Option for subscription models: If you subscribe to a magazine, newspaper or digital publication, you’re probably already familiar with recurring payments. Think about how useful they could be for your business. With a monthly payment, your clients could maintain hassle-free access to your platform. More efficient, customer-friendly business is possible, if not probable, with recurring payment subscriptions.

Best credit card processing services for recurring payments

There’s no one way to set up recurring payments for your business. Instead, the steps you’ll take will vary based on your credit card processor of choice. We’ve explained how to accept recurring payments with a few of our reviews of the best credit card processing providers.

Clover

Clover is our favorite two-in-one point-of-sale and credit card processing platform. You can use Clover’s virtual terminal to accept and process payments entirely digitally. Log in to the Clover web dashboard and accept all pending transactions. You’ll pay a fee for this service, including a 1 percent rate to optionally avoid the one- or two-day hold. 

Beyond its tools for accepting recurring payments, Clover has all kinds of business-friendly features. You can use Clover to create gift cards, generate sales reports, build an e-commerce website and more. Clover also offers merchant cash advances (MCAs) that can help you obtain extra funding for your business. Read more in our Clover credit card processing review.

Merchant One

Merchant One’s credit card processing is our top choice for businesses that need easy approval to start using credit card processors. You can access Merchant One’s payment processing services anywhere you can access the internet. The platform also includes an invoice generator and a QuickBooks plugin to integrate your recurring payments fully. You’ll get payer authentication and anti-fraud tools as well. 

When you use Merchant One to accept recurring payments, you pay a monthly fee that starts at $13.95 for the company’s introductory plan. Your processing fee for swiped transactions will range from 0.29 percent to 1.55 percent. For keyed-in transactions, the maximum is 1.99 percent. No matter how you enter customers’ card information, you can store it securely in your Merchant One customer vault. Learn what other features are included in our Merchant One’s credit card processing review.

Stax

Stax is our top credit card processor pick for small businesses. On its dashboard, you can create recurring invoices that generate recurring payments. Stax makes it easy to set an automatic recurring payment or invoice schedule when you create an invoice. 

Stax pricing for businesses starts at $99 per month, with subscription pricing depending on the number of transactions you process each month. While this platform tends to have higher fees initially, Stax lacks the hidden fees common with other brands. Find out what other features you’ll get in our Stax credit card processing review. 

Payment Depot

If you expect to process a high volume of recurring payments, Payment Depot is our top choice for your business. Its uncommon model of membership-based pricing and wholesale rates can keep your costs lower than paying fees that increase with transaction volume. Payment Depot doesn’t bind you to long-term contracts, meaning you can switch easily if you’re not happy. 

This guide should help you decide which credit card processor will best fit your recurring payment needs. Once you do, easier accounts receivable management is right around the corner.

Keep business moving with recurring payments

If you offer a product or service that repeats regularly, recurring payments can remove the hassle for you and your customers. Choose a credit card processor that best fits your business needs, so everything runs smoothly. In addition to streamlining your financial processes, it’s also an important part of delivering the best customer experience possible. 

Natalie Hamingson contributed to this article.