Best Practices in Recurring Payments: What You Need to Know

Subscription services are constantly evolving.Businesses must find new ways to make customer experience as seamless as possible. Following these 5 recurring payment practices will help you thrive in the ever-changing subscription metaverse.
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Recurring services have permeated nearly every aspect of a customer’s life. From pet supplies to audio/video streaming to just about everything you can imagine. 

As a business owner, offering products and services on a recurring basis also means — collecting recurring payments. The ability to efficiently collect recurring payments can mean the difference between success and failure. 

To successfully execute a subscription billing and revenue management statement strategy, organizations must be ready to make significant changes to existing processes, consider new approaches to scale, and establish formal governance.

Let us dive into the realm of recurring payments and practices that benefit your business. 

TL;DR

  • A recurring payment is used to charge customers regularly — be it monthly, quarterly, half-yearly, annually, or as per usage. 
  • Customers enjoy the convenience and simplicity of automated payment methods. Knowing the exact amount they will be charged makes budgeting easier. 
  • Flexibility in configuring subscription plans, dunning management, and integration with tech stack are some of the key things to look for in a recurring billing system. 

What are recurring payments? 

Recurring payments are pre-scheduled payments that automatically repeat after a billing cycle over the agreed-upon contract length or until the customer cancels the subscription. By setting up recurring billing, customers enjoy uninterrupted access to their services, and companies ensure a steady revenue stream. 

Typically, there are two types of recurring payments — fixed and variable recurring payments. 

Fixed recurring payments:

In fixed recurring payments, customers are charged the same amount in each billing cycle. This is common with subscription-based businesses, in which the customer consumes the same amount of product in every billing cycle or when the prices are fixed. 

Examples of fixed recurring payments include video streaming service subscriptions (like Netflix), magazine subscriptions, or gym memberships. 

Variable recurring payments: 

On the other hand, variable payments change, depending on how many products or services a customer consumes. The billed amount is unique for each cycle, and the payment is made according to the amount of product or service utilized. 

Twilio, a messaging solution, offers its customers the option to pay-as-you-go. The total cost of your messaging solution will depend on the monthly messaging volume.   

What are the benefits of recurring payments in SaaS? 

Business leaders worldwide agree that subscription-based businesses are the future. According to Gartner, all new software players and 80% of historical vendors are now opting for recurring payments. 

“What began as a trickle a few years ago, has become a stampede of vendors wanting to move to a subscription business model,” says Gartner. 

On the other hand, customers enjoy the convenience and simplicity of automated payment methods. It makes budgeting easier for customers since they know the exact amount they will be charged. 

Here are some more benefits of recurring payments in SaaS —

1. Predictable revenue 

Recurring payments allow businesses to make more accurate forecasts of revenue generation over a set timeframe. This makes it easier for sales and marketing to forecast growth or re-evaluate their decisions in case there is a failure indicator. 

2. Appealing prices

Subscription billing allows you to set lower prices in return for regularly scheduled payments. While you might charge more over a period of time than for one-time payments, customers often prefer to pay in small installments. This is great for onboarding new customers who might not be able to afford lump-sum payments. 

3. Minimized efforts 

With the recurring payment model, businesses don’t have to chase late payments or manually send out reminders to customers on their next billing cycle. The process is automated and saves businesses both time and money. 

Automated payments also reduce friction, which is a common problem with recurring payments where customers have to go through the hassle of making manual payments for their subscriptions. 

4. Easy to upsell and cross-sell

Selling to someone who is already committed to your product is easier than selling to someone who has not heard of your product. 

A continued customer relationship provides the opportunity to develop a strong understanding of customer behavior and preferences. It becomes easy to identify customers who might benefit from an upsell or cross-sell, leading to an increase in revenue and customer lifetime value for the business. 

5 Best practices for recurring payment management

Subscription-based services are constantly evolving, so businesses must find new ways to make their customer experience as seamless as possible. Following these 5 recurring payment practices will help you thrive in the ever-changing subscription metaverse. 

1. Invest more in churn minimization 

Most SaaS subscription companies face churn issues, whether voluntarily (where a customer plans to end their subscription) or involuntarily (where the customer is willing to pay but the payment fails). 

Research shows that business leaders around the world expected an increase in churn. With customers cutting back on spending, an increase was to be expected. 

However, 41% of businesses have reported an increase in involuntary churn. Among subscription-based users who experienced unintentional churn, 32% have not yet adopted any tool designed to increase the chances of successful payment.  

Source

  

If you want to reduce involuntary churn, it is extremely important to invest in an automated billing solution. The software will automatically update expired cards, and retry failed transactions to increase the chances of successful payments. 

Lastly, if they do not want to continue with a subscription, ask why. The reasoning will help you improve your product and pricing, or else you can come back with a win-back offer. 

2. Add local payment methods to serve customers better and cut costs

Global expansion is a powerful way to accelerate growth. To reach more customers, many subscription-based businesses will look beyond the saturated domestic market to new international ones. 

For example, 54% of online transactions in China involve digital wallets such as Alipay or WeChat, and 20% with local card network China Union Pay. Without supporting this payment method, you might miss out on your targeted Chinese customers. 

One key driver for including local payment methods is lower cost. For example, SEPA Direct Debit in Europe, ACH Direct Debit in the US, and BECS Direct Debit in Australia are cheaper. 

Other payment methods with multi-factor authentication, such as Apple Pay and Google Pay, see fewer chargebacks and less fraud, helping subscription businesses offset the cost associated with each of these. 

3. Move beyond the in-house billing system

Manual billing or creating an in-house billing system makes sense until it does not.. It works until your budget is tight, operations are small, and clients are few and need prompt payment. But the lack of scalability quickly creeps in, as the organization grows and handles large volumes of transactions. 

Here are some common issues that you might face, if you continue with your in-house billing system —

  • As you scale, every additional customer, upgrade, and downgrade request, as well as payment method, will exponentially increase billing complexity. At this point, running an in-house billing system might feel like running a second product besides your core product. 
  • Beyond operations, you also have to comply with security standards. Your payment solution should follow GDPR, PCI-DSS compliance, and accounting standards like ASC 606. 
  • Integration with third-party tools adds to the complexity. Ensuring that every facet of your billing system seamlessly integrates with your tech stack, is challenging. 
  • Revenue recognition might seem simple when you are starting out, but as your business grows, it will become complex to execute. You will require built-in reports that automate reconciliation and efficiently recognize revenue.
  • Managing billing accuracy is challenging for in-house billing systems. Even the slightest error can snowball into financial havoc, customer dissatisfaction, and administrative hassles. 

Owing to the complexity and resource requirements of in-house billing systems, many subscription-based businesses are replacing them with third-party billing solutions.

The correct billing solution will eliminate the need for constant fact-checking and automated billing operations. These benefits will allow sales and marketing teams to focus to work on revenue-generating activities, thereby increasing sales efficiency. 

4. Prioritize customer data security 

Customers are more concerned about data security than ever before. Their concerns are not groundless either. Though some companies are open about their data practice, most prefer to keep their customers in the dark and take control over sharing. 

According to a recent KPMG survey of US residents, data privacy is a growing concern for 86% of them, 68% are concerned about the data collected by businesses, and 40% of respondents believe that companies use their data unethically. 

Source

With such widespread distrust, meeting security standards should be a top priority for companies. Here are some top cloud security threats that your business should be aware of:

  • Common app security vulnerabilities include broken access control, security misconfiguration, and software and data integrity issues that are left untracked. 
  • Depending on the type of your app and the location of your customers — there are a few regulations and frameworks that you may need to adhere to —
  • General Data Protection Regulations (GDPR) — If your company provides services in the European Union and the European Economic Area, you will be required to comply with these regulations.
  • Payment Card Industry Data Security Standard (PCI DSS) — It applies to all businesses that collect, transmit, or store credit card information. 
  • ISO/IEC 27001 — It is an international standard for information security management systems (ISMS).
  • SOC2 — A compliance standard specifically for cloud-based SaaS organizations operating in the US. 
  • 51% of ransomware attacks in the last 12 months targeted SaaS data, and more than half were successful. Threat attackers take complete advantage of vulnerable cloud-based platforms, capitalizing on the large chain of user data they can capture. 
  • Lack of incident response efficiency is a criminal offense. Most security regulations ask companies to report cyber crimes within 72 hours. 

If you want your customers to trust you completely with their data, you will have to adhere to security guidelines and process payments  securely. A good billing software provides an end-to-end subscription.Even if someone tries to hack your data, it is incomprehensible without a key. 

5. Educate your customers 

Customers generally distrust businesses because they lack education on how their financial system works and its benefits. 

Failure to educate customers to sign up for recurring payments shows incompetence or exploitation.

Remember that an uninformed customer could potentially be a detractor.Here’s how you can establish transparency —

  • Before you ask your customers for financial data, make sure to educate them on recurring charges, processing fees, late fines, among others. Give them a clear idea of the amount of money they will be charged, every billing cycle. 
  • To prevent future payment disputes or chargebacks, you must get the customer’s consent before processing any payment. A checkbox on your checkout page will suffice in such cases. 
  • With so many subscriptions, it is difficult for customers to keep up with how much they are paying each month. Therefore, it is only ethical to notify your customers about the services they have subscribed to and the payments due for the billing cycle. 
  • Make it simpler for customers to contact the customer support team regarding payment issues, especially recurring payments. 
  • Make it easy for customers to cancel their subscriptions. When you make cancellations difficult, customers will only feel agitated with you. This can impact your business’ image and reputation in the marketplace. 

Customers would rather stick to a SaaS business whose payment terms are transparent, rather than risk a bad experience with an unethical provider. So, make sure your payment terms are transparent so that your customers can seamlessly raise queries, and pause or cancel subscriptions. 

How do you choose the best recurring payment system for your business?

An ideal recurring payment system helps you manage even the most complex billing effortlessly — while reducing the hassle of manual payment and human inaccuracies.

But the biggest question remains unanswered — what features should you look for when choosing a recurring payment system for your business? These are some top features —

  • Many B2B billing tools are pretty complex and require a dedicated payment system to calculate revenue, based on custom rules. Your billing solution should simplify any complex billing. It should also customize workflows, offer limitless flexibility, and empower the finance teams to automate all billing processes. 
  • Recurring payment systems should be easy to set up, iterate, and manage without needing an engineer. A drag-and-drop contract builder can help sales teams quickly draft customer contracts, to match the perceived value. 
  • Look for features that meet your business needs, such as multiple payment options, currency support, automatic payments, recurring billing, and customization capabilities.
  • Modern billing tools come with email management functions that let you send payment reminders and dunning sequences, allowing you to easily track, monitor, and reconcile payments. 
  • Along with all the above functionalities, an ideal recurring payment system should offer integrations with existing tech stack to help sync all your payment activities. 

Try Zenskar, a fully-automated, completely flexible option, with no-code billing infrastructure

Zenskar is a modern billing solution designed to address the complex billing challenges faced by modern new-age SaaS businesses. and recent pricing trends — such as flat-fee, matrix, percentage, metered, and even custom-tiered pricing.

In addition to limitless flexibility, Zenskar offers revenue recognition, entitlement management, and dunning so you can manage billing operations from start to end. 

The no-code, drag-and-drop editor minimizes reliance on your engineering team and empowers the finance team to take complete control. 

Curious to learn more? Book a demo, and we'll show you how Zenskar can automate your billing options.

Frequently Asked Questions (FAQs)

1. What are recurring payments?

Recurring payments are pre-scheduled payments that automatically repeat after a billing cycle over the agreed-upon contract length or until the customer cancels the subscription. By setting up recurring billing, customers enjoy uninterrupted access to their service, and companies ensure a steady revenue stream. 

2. What is an example of a recurring transaction?

Examples of recurring payments include video streaming service subscriptions (like Netflix), magazine subscriptions, or gym memberships. 

3. Can recurring payments be canceled at any time?

Yes, recurring payments can be canceled at any time. To cancel a subscription, the user must contact the customer support team or follow the instructions on the website or app.

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