Recurring payments are a purchasing strategy that has gained significant prominence in recent years because, in addition to building customer loyalty, they provide stability and allow your company to grow sustainably.
In this article, we will explore the main concepts of this strategy, how it works, the advantages of adopting this billing method, and how you can implement this system in your company. Check it out!
What is recurring payment?
Recurring payments are a periodic billing method where customers are automatically charged monthly, bi-weekly, or annually for a service they are using.
This is a billing system widely used by streaming platforms, subscription clubs, online courses, SaaS companies, delivery services, gyms, and various other companies that offer subscription services.
In other words, the customer chooses a payment method in which they wish to receive automatic charges for the subscribed service, and the amount will always be deducted during the chosen period until they or the company chooses to cancel their subscription.
What are the advantages of implementing a recurring payment system?
Adopting this system brings several advantages to both your business and your customers. Below, we will discuss some of the main benefits associated with this strategy:
Predictability and stability of revenue
Through regular billing, it’s possible to more accurately predict your company’s monthly and future revenues, which facilitates financial planning and all decisions related to resource allocation.
To find out the gross revenue for each month of your subscription service, it’s very simple: just multiply the number of active assistants by the amount charged.
Reducing delinquency rates
Furthermore, due to the automation of recurring payments, it eliminates any possibility of delays and prevents your customers from forgetting to make payments, which considerably reduces default rates.
This also contributes to increased approval rates and prevents your company from facing cash flow problems that can arise due to high default rates.
Operational efficiency
Automation increases the operational efficiency of your company’s finance department by reducing the manual workload associated with payment management, allowing you to reallocate resources to other more important activities.
Scalability
A well-implemented recurring payment system is able to scale and support a larger number of subscriptions when needed without requiring significant adjustments, keeping pace with your company’s growth.
Customer loyalty
As we mentioned earlier, adopting a recurring revenue model is an excellent strategy to offer convenience, improve the consumer experience, and consequently, further increase customer loyalty.
You can associate benefits and advantages, discounts, or even exclusive content for customers who have had an active subscription for a long time or who choose to subscribe to monthly and annual plans.
3 recurring payment methods to offer your customers.
Offering different payment methods is a good way to attract more users and increase customer satisfaction. With that in mind, we’ve outlined some of the main methods:
Credit card
Credit cards are one of the most widely used payment methods in the world. Recurring charges are made automatically without requiring consumer approval.
This helps reduce payment delays and provides convenience for the customer, as they don’t need to manually enter their information every month to continue using the service or product.
For businesses, this method offers security and revenue predictability, ensuring greater control over their monthly, quarterly, or even annual income.
Automatic debit
As the name suggests, automatic debit is a recurring payment method where the customer authorizes the company to automatically debit the subscription amount directly from their bank account at the due date.
This is one of the safest billing methods with the lowest risk of fraud, as transactions are made directly between bank accounts and customers can stop them at any time.
Bank Slip
Bank slips (boleto bancário) are one of the most popular payment options in Brazil and are widely used by people who don’t have a credit card or bank account. In this method, the company is responsible for issuing and sending the payment slips with the subscription amounts.
Even though it’s a very flexible and popular method, it’s important to note that it cannot be automated, which can lead to a higher rate of default due to delays or forgetfulness.
Differences between recurring payments and installment payments.
Although they seem very similar, in installment payments the total value of a product or service is divided into several pre-defined installments that are charged monthly until the entire amount is paid.
In the recurring model, charges are made automatically and continuously as long as the customer chooses to keep their subscription active to use a platform, course, or service.
While installment payments facilitate the purchase of high-value products or services, they require the customer to have a credit limit equal to the total purchase amount available, which compromises the use of the credit card for other things.
How do you implement recurring payments in your business?
To implement this system effectively, a few steps need to be followed. With that in mind, we’ve prepared a mini-guide outlining the main stages of the process; see below:
- Choose a Platform: Choosing the right platform is essential to ensure the success of this implementation. Tools like Stripe, PayPal, Recurly, Cargebee, among others, are great options.
- Configure Subscription Plans: Define how the subscription plans will be structured; this includes prices, billing period, benefits, and how many different levels will be available.
- Define Payment Methods: If possible, offer different payment options to your customers, such as credit card, direct debit, bank slip, and Pix (Brazil’s instant payment system).
- Integrate the Payment Platform: Next, you need to integrate the chosen tool with your website or management system and test it. This can be done through an API or a plugin.
- Test the System: Before officially launching, don’t forget to test the payment system to ensure it’s working correctly and adjust anything necessary.
- Billing Policies: Default is inevitable, so create clear and effective policies to collect from your customers in case of delays or oversights. For example, you can choose to send an email or SMS one day after the due date.
Have you learned what recurring payments are?
We hope our article has helped you understand what recurring payments are, as well as showing all the advantages of adopting this system, clarifying your doubts about the different billing methods available, and how easy it is to implement it in your business.