A Guide to Recurring Payment Processing for Businesses

Do you run a business that involves collecting recurring payments from your customers? Along with the benefits of predictable income, this revenue model also presents a number of challenges. You need to ensure transaction security, manage your customer data, and deal with errors or failed payments. Recurring payment processing can be complex. It helps to have the right technology to store and manage all the data, schedule and action payment collection, and ensure compliance with various financial and data protection regulations. Here is what you need to know about how to implement and manage recurring payments.

You may also know recurring payments as subscription payments or automatic payments. They are transactions that are set up to happen automatically on a preset schedule – monthly, weekly, annually, etc. They are regular payments made by a customer to a business, charged on a recurring basis. The most common recurring payments are used to pay for subscriptions and memberships – think Netflix, Spotify or your local gym, for example. Recurring payments are convenient for both businesses and their customers. Once the recurring payment is set up, neither party really needs to think about it again. The customer gets their service or product, and the business receives predictable, even passive, income.

Recurring payment processing requires a combination of various systems and methods to implement and manage. The systems are required to collect recurring payments for a vital part of subscription-based businesses and others with recurring revenue models. Customers give businesses permission to charge their cards or bank accounts on a regular basis, and the business then sets up recurring debits as per the agreement made with the customer. There is much more to it, of course, so let’s break down the entire process, step by step.

The sequence of steps involved with recurring payment processing is as follows:

First, the customer consents to being charged on a recurring basis. This could be ongoing or for a specific contract period, such as six months, one year, etc. The customer provides credit card or bank account details, and agrees to the terms of recurring payment. The terms of the agreement should state the amount, the date and frequency of charges, and the exact products and services they will be charged for.

The business then needs to capture and store the data recorded in the agreement. This is usually done through a payment gateway or a third-party service provider that complies with PCI DSS regulations. The customer’s payment details are tokenized to prevent interception and fraud.

The business will have to set up a schedule for the collection of payments during the contract period. It sends a request to the customer’s bank or credit card company to charge the specified amount, at specified intervals. Once the request is approved, the system is automated to process the payments at the correct intervals.

When the payment date comes around, the payment gateway or processor initiates the transaction automatically. It sends a request to the customer’s financial institution to charge the agreed amount. This process does not involve the customer directly at all. On the business’s side, a staff member may have to initiate the request manually each time. In most cases, however, the system is set up to send an automatic request.

The financial institution receives the request. Once the transaction is approved, the customer’s account is debited and the funds are transferred to the business’s account.

Sometimes, the transaction might fail – usually because there are not sufficient funds in the customer’s account. Payment processors usually have systems in place to handle these errors. It may involve notifying the customer of the failure and asking for it to be rectified, or retrying the charge at a later stage.

Recurring payment processing is not only about collecting payment. It also involves the active management of customer subscriptions. It integrates functions such as plan upgrades, subscription renewals or cancellations, and customer enquiries. 

Recurring payment processing reduces the administrative work that businesses need to carry out as they generate predictable revenue. On the other hand, it also gives customers uninterrupted access to products and services.

Recurring payments can be handled in several ways. The choice of system depends on the nature of the business, transaction volume and frequency, and the type of products or services. The most common tools used by businesses include:

A payment gateway is a digital tool that businesses use to accept debit or credit card payments. Gateways can be configured to manage recurring payments, store customer payment information and charge customers on a set schedule.

These are bank accounts that allow businesses to accept payments in multiple ways, usually through bank cards, but also through digital means, such as electronic funds transfers. They can be set up to accept recurring payments or work alongside payment gateways.

Businesses can also use direct debit providers to automatically debit a customer’s bank account on a recurring schedule. This is not so much used to charge single customers. It is more common for larger B2B transactions.

Businesses with US-based customers can use Automated Clearing House (ACH) processors to handle recurring payments. They extract the specified amount directly from the customer’s account and push it to the business’s account.

These platforms are designed specifically to manage subscriptions, and that includes setting up and managing recurring payments. They offer a range of features, including pricing plans, discount management, trial periods and automated email responses.

Some businesses might use enterprise resource planning (ERP) and customer relationship management (CRM) software. These can be customized with recurring payment and subscription management functions, or may already be included among their standard offerings.

You may wonder which method you should choose. All of these systems work equally well. It just depends on your own needs and resources. As you look for the best solution, consider the cost of the solution, its ability to integrate with your existing systems, its security provisions and the provision.

Access2Pay is a cloud-based POS solution ideally suited for your retail business – whether you operate a brick-and-mortar store, an e-commerce platform, or a combination of both. It integrates easily with any other tools you need to run your business, including accounting software, payment gateways, payment processors, and more. This means it can be used to set up and manage recurring payments, a central part of the business models used by a variety of businesses, such as gyms, software as a service (SaaS), and more. 

The benefits of our system include:

Track and manage your inventory accurately, from intake to sale. You can monitor your stock levels, and automate and streamline your ordering processes.

Our solution includes payment software for service-based franchises, small retail operations, healthcare and wellness businesses, and government departments among others. Aside from its integration abilities, Access2Pay can be customized to suit the needs of each user. If you would like to learn more about Access2Pay, its capabilities, and how it could work for your business, you are welcome to contact us for more information or a demo.