What is a Recurring Transaction, and How Can it Benefit my Business?
A recurring transaction is a payment that occurs on a regular basis.
Many of us are familiar with recurring payments from the consumer side, since so many companies follow a subscription model these days. For example, if you’re subscribed to a service like Netflix or Spotify, then you pay the same amount each month, and the company automatically bills your credit card without any work on your part. That’s a recurring transaction. Many recurring transactions happen each month, but they can also occur quarterly, annually, or on another custom schedule.
Recurring payments are growing more and more popular, especially in the software and IT industries. In response to the global pandemic and the sudden surge in working from home, many businesses have migrated to cloud-based and subscription-based business tools. In fact, the International Data Corporation has predicted that by 2022, 53% of all software revenue will come from a subscription model.
Buying habits are changing, and not just in the software sector. As more and more consumers adopt recurring and subscription-based products and services across every conceivable industry, customers are coming to expect recurring transactions as the norm. Is your business ready to provide that option to customers?
Recurring transactions offer a number of benefits to both merchants and customers. Customers get a much more convenient, seamless sales experience, while merchants save time and money on payment collections.
Better customer experience
Customers appreciate recurring transactions because they let them enjoy uninterrupted service without worrying about making payments each month, quarter, or year. Customers can easily manage their payment preferences as needed, but for the most part, it’s a hands-off process, so they don’t have to think about actively making a payment.
Increased customer retention
Recurring transactions help increase customer retention. When customers are automatically billed, they become used to the service and are less likely to cancel. Instead of making an active choice to pay each month, they become accustomed to the status quo. This retention can also lead to increased customer loyalty and better customer relationships.
With recurring transactions, customers only have to enter their payment details once. They’re not repeatedly sending payment information online or over the phone. Instead, the credit card information is securely tokenized on the merchant’s system. Tokenization is a process where sensitive information is swapped out for a valueless token, so in the event of a data breach, no information is exposed. And with the protection of PCI compliance, encryption, and other advanced security methods, customers can rest easy knowing their payment information is safe.
For many merchants, recurring payments represent a steady source of reliable income. When merchants know in advance that a certain number of customers will be billed that month, it gives them space to breathe. Businesses with several different payment models, products, or services—for example, one-off purchases in addition to a subscription service—especially benefit from the peace of mind that recurring transactions bring. Recurring payments can keep businesses going strong by providing them with a predictable revenue stream.
Improved cash flow
Recurring transactions also boost merchants’ cash flow. Recurring payments are billed automatically, so merchants can collect payment right away. They don’t have to reach out to customers or follow up—they simply get the payment in their bank account and keep moving.
Fewer late payments
Recurring payments significantly reduce late payments from customers, which removes the burden of collections from the merchant. And because merchants don’t have to chase down payments, they can focus instead on building positive relationships with customers.
Less time spent on accounting
Because they’re automatic, recurring transactions reduce the amount of time and money your team will spend on the accounting process. In addition, automation reduces the chance of human error, saving your team time on fixing mistakes. Instead of spending time on data entry or other rote tasks, the accounting team can focus on more important projects.
Recurring payments are becoming more and more popular across a wide number of industries. As consumer habits change, and customers become accustomed to subscription-based models, businesses will have to step up and provide their customers with convenient options. If you’re searching for a way to enable recurring transactions, use a payment application like EBizCharge, which integrates with your accounting/ERP software and provides easy-to-use recurring billing options for you and your customers.