When it comes to payment options, there is a lot to get right, and perhaps just as much to get wrong. Take recurring payments, for example. We put together a list of eight do’s and don’ts when it comes to this concept. Let’s start with the question:
What is Recurring Payment?
Recurring payments, familiarly referred to as as AutoPay, means the consumer has given permission for a retailer or merchant to deduct payments for goods or services each month from the consumer’s bank account or to automatically charge his credit card in the amount due each month. The merchant must get the consumer’s permission one time up front. The merchant deducts the amount on the due date so late fees are never a problem. The automatic payments continue until the consumer retracts his permission.
1. Do: Your due diligence when shopping for a recurring payment platform
You want a subscription provider that complies with Payment Card Industry (PCI) standard practices for payment security. Built-in fraud protection is another important feature to cope with today’s cyber criminal attacks.
2. Do: Make sure the payment processor you choose has the features in its platform that you need
If you need flexibility to receive payments in international currency, for example, you will want to make sure the platform you use has this ability.
3. Do: Take into account that recurring payments help reduce bill collection expenses
Not only does recurring billing bring income into your coffers reliably on a monthly basis but it means you no longer have to spend staff time (or hire additional bill collectors) to go after delinquent accounts. Even when bill collection activities yield a positive result, the expense of going after non-paying customers lowers the yield on customer transactions.
In the healthcare field, recurring payments bring faster resolution to outstanding balances than traditional invoicing. Many healthcare insurers and medical care providers now offer the ability to make recurring payments for services rendered and for premiums owed during the coverage year.
4. Do: Look for a subscription service with recurring payment ability that also accepts payment in any of the ways your customers want to shop
That means accepting all major credit cards and having relationships with major banks to handle AutoPay.
1. Don’t: Forget about churn rates
Your churn rate is the annual percentage rate at which your customers stop your subscription service. To succeed, the company’s annual growth rate (new customers) must surpass the annual churn rate (customers terminating the relationship).
Churn rates vary widely and differ from industry to industry. They are very important to industries where subscriptions form the bulk of the company’s income. The telecommunications industry is a good example of an industry for whom the rate of churn is important to the profit margin. Cable, satellite, internet providers, and telephone companies are all part of the telecommunications industry. They use churn rates to determine how they stack up against other companies in this highly competitive market.
You want a payment processor that can help you understand your churn rate and how to manage it.
2. Don’t: Buy into a recurring payment system that requires a huge integration commitment or significant expense
Going it alone without a subscription service can mean both.
3. Don’t: Forget about reports
You want to track transactions and your churn rate. Recurring billing platforms should provide you with reports to understand how your recurring billing is helping your company grow.
4. Don’t: Ignore the effect recurring billing has on your customer retention
Many customers enjoy the set-it-and-forget effect that recurring billing has on their monthly bills. They find the feature especially helpful with regard to those bills that are in the same amount each month and due on the same date each month. Customers don’t want to bother with remembering to pay your invoices each month. They appreciate that recurring payments keep them secure in the knowledge that they pay their bills each month without fail — without effort — until cancelled.