When it comes to taking recurring payments from your customers, several different methods are available to you. This guide will focus on recurring card payments – one of the most popular and convenient methods around.
We’ll cover everything you need to know about recurring card payments from. We will also compare this method to other recurring payment methods: ACH debit and standing orders.
So whether you’re just getting started with subscriptions or looking for a more efficient way to take regular payments from your customers, this guide is for you!
What Are Recurring Card Payments?
A recurring card payment is a recurring debit or credit card transaction authorized by the cardholder. Recurring payments are often used to make regular payments for subscriptions, memberships, and recurring invoices.
With recurring card payments, the customer’s card details are stored securely on your system (often using a PCI-compliant third-party payment processor), and the customer is charged automatically regularly.
Recurring card payments are convenient for both businesses and customers — businesses can take payments automatically, and customers don’t have to remember to make each payment manually.
Recurring card payment lets your business collect payments from a customer’s card that can be processed automatically on a recurring basis. Once your customer agrees to recurring payment, you won’t need further authorization from them every time you collect payment from their account.
Keep in mind that laws may differ from state to state, so if you don’t have a trusted payment provider (e.g., GoCardless for ACH debit payments or Stripe for card payments) to handle legal compliance, you should consider seeking legal advice before you start collecting recurring payments from your customers.
When to Use Recurring Card Payments?
Recurring card payment is one of the most common ways to collect recurring payments from customers. They offer regular revenue, sales opportunities, and consistent and predictable cash flow.
Payments are charged automatically, with customers receiving their orders without any extra activities or steps.
Recurring card payments are good for the following:
- Transactions that need next-day payment (immediate clearing): E-commerce services such as Netflix or Amazon Prime use recurring card payments as payment for their subscription fees.
- High-value goods and liquid assets: Other recurring payment options such as ACH debit are not suitable for these transactions as they present a target for fraud. Cars or currency are such examples.
- Gaining new customers: Customers are often put off by the hassle of entering their card details each time they make a purchase. Recurring card payments offer a much smoother and simpler purchase experience.
On the other hand, recurring card payments are not ideal if:
- You’re looking to reduce the instance of payment failures: If you’re a member of a subscription business, recurring payments typically have a higher failure rate than one-time payments. This is because customers may cancel their card or have insufficient funds when the payment is due.
- You intend to reduce cost per transaction: Recurring card payments often have higher fees than other recurring payment options, such as ACH debit.
- You want to offer more flexible payment terms: Recurring card payments are typically charged monthly or yearly. If you want to offer more flexible payment terms, such as weekly or bi-weekly payments, recurring card payments may not be the best option.
How to Start Taking Recurring Card Payments
Starting to take recurring card payments is relatively simple and can be done in a few steps. To start taking recurring card payments, you’ll need to do the following:
- Use a payment gateway or PSP (payment service provider) that supports recurring billing.
- Get set up with a merchant account that can process recurring payments.
- Ensure you have the proper security measures in place to protect your customers’ card data (PCI compliance).
- Let your customers know about the recurring billing, and give them the option to choose it as a viable payment option.
- Receive authorization from your customer to take recurring card payments from them (make sure you keep a record to show this).
- Store the customer’s credit or debit card information (Note: the CVV, CVC, or CID — the 3-digit code on the back of the card, is prohibited from being stored by merchants, as per PCI compliance).
- Start processing recurring card payments through your chosen payment gateway or PSP.
How to Make Changes to a Recurring Card Payment
If the original authorization is still valid, you can change recurring card payments as long as the customer’s credit or debit card information is stored. To do this, you’ll need to:
- Get in touch with your customer and let them know about the changes you wish to make.
- Update the recurring payment information stored by the payment gateway or PSP.
- Make changes to the recurring billing schedule, if necessary.
- Update your customer again with the new recurring payment information.
For example, you may charge customers based on how they use your services. Their usage will vary from month to month. In this case, it’s not uncommon for companies to specify a range that their customers will be charged typically.
If the amount falls outside this range, you should notify your customer at least ten days before collecting payment. But, again, this may vary from state to state, which is why it’s worth seeking legal advice to be sure.
Recurring Payments, ACH Debit, or Standing Orders?
Which is the best for your business? Should you go for recurring card payments, or should you consider other options like ACH debit and standing orders? All of these options are automatic payment methods used for collecting regular payments. So, which is the best for your business?
The answer, as always, is that it depends on your specific business needs. So let’s look at each option, in turn, to help you decide which is best for you.
Recurring Card Payments
Recurring card payments are typically made with a credit or debit card, and the merchant stores the customer’s card information. This type of recurring payment is convenient for customers as they don’t need to remember to make a payment each month — it’s automatically taken from their card. However, recurring card payments have a higher failure rate than other recurring payments, such as ACH debit or standing orders.
ACH debit is a recurring payment method where the customer’s bank account is debited each month (or other time period). ACH debit recurring payments are typically used for utility bills, gym memberships, and other recurring payments.
One advantage of using ACH debit is that customers can’t miss a payment as the funds are automatically taken from their bank account. However, customers may need to give their bank account details to the merchant, which some people are reluctant to do.
Standing orders are recurring payments set up between a customer and their bank. The customer instructs their bank to make regular payments to the merchant’s bank account. Standing orders are typically used for fixed amounts, such as rent or mortgage payments.
One advantage of using standing orders is that they’re often cheaper than recurring card payments for the customer. However, setting up a standing order can be more complex than other recurring payments, and customers may need to go into their bank to set one up.
Customer Retention and Reliability
As mentioned earlier, recurring card payments have a higher rate of failure than ACH debit payments. As a result, it can potentially lead to loss of revenue and unhappy customers. Expired card details, canceled cards (lost or stolen), or customers hitting spending limits on their cards are some of the reasons for recurring card payment failures.
Payment failure rates tend to vary from various recurring payment options. However, this rate is usually greater than 5% for recurring payments. So, how can you boost reliability and customer retention?
Fortunately, solutions are available to help increase card payment reliability while reducing potential customer churn. There are two categories for dealing with customer retention and reliability:
This solution aims to prevent card failures from resulting in customer churn by automatically retrying card payments at specific intervals. For example, if the customer has another card on file, the recurring card payment will be retried with the new card details.
Reactive solutions can help reduce customer churn, but they don’t do anything to prevent card payment failures in the first place.
This solution uses machine learning to identify recurring card payment issues before they happen. By analyzing customer data, proactive solutions can identify potential issues and take action to prevent them.
For example, if a customer’s card expires, the recurring card payment will be retried with the new card details before the expiration date. Proactive solutions can help reduce customer churn and prevent card payment failures.
So, which is the best solution for your business? It depends on your specific needs. For example, if you’re looking for a solution that will help reduce customer churn, then a reactive solution may be best.
On the other hand, if you’re looking for a solution that will help reduce customer churn and prevent card payment failures, then a proactive solution may be the best option for you.
How Recurring Payments Protect Customers
There are several ways recurring payments protect customers:
Reduce the Risk of Fraudulent Transactions
When a customer makes a recurring card payment, the merchant can choose to require the customer to enter their CVV (card verification value) code each time. This helps reduce the risk of fraudulent transactions, as it means the customer’s physical card must be present to make a payment.
Protect Customers from Unauthorized Transactions
Another way recurring payments protect customers is by ensuring that customers can only be charged for authorized transactions. For example, if a customer cancels their subscription, the merchant will no longer be able to charge the customer’s card. Again, this protects customers from unauthorized transactions.
Get Refunds for Failed Transactions
If a recurring card payment fails, the customer is typically entitled to a refund. This is not the case with other types of recurring payments, such as ACH debit payments. Customers can apply for a refund if a recurring card payment fails, protecting them from being charged for a failed transaction.
Why Choose ReliaBills
If you’re looking for the best recurring billing software to help you take recurring card payments, look no further than ReliaBills.
ReliaBills is an invoicing and recurring billing platform that helps businesses create unique invoices and set up a recurring billing system for their business. With ReliaBills, you have one of the best recurring billing providers that offer full control and customizability of your billing process.
ReliaBills recurring billing software is simple to use and comes with a wide range of features, including:
- The ability to create automated invoices from which recurring card payments can be made.
- The ability to set up recurring payment schedules.
- The ability to accept recurring card payments from customers by enrolling them in AutoPay.
- The ability to deal with failed payments by automatically retrying card payments at specific intervals.
- The ability to keep track of your recurring billing with reports and analytics.
- The ability to record, save, and store customer payment information.
- And more!
With ReliaBills, you have everything you need to take recurring card payments from your customers. So, what are you waiting for? Create your free account today!
NOTE: To access our recurring billing package, you’ll need to upgrade your account to ReliaBills PLUS for only $24.95 per month. Click here to learn more!
Recurring card payment is a popular way for businesses to take regular payments from their customers. It offers several benefits that will help bolster revenue while retaining customers longer. If you’re interested in using this recurring payment method, make sure you do thorough research and consider this article as a useful resource to help educate yourself with recurring card payments.