Recurring payments are a fairly self-explanatory payment model, utilizing an automated payment system to charge customers for a fixed amount offer a certain period of time. Canadians rely on recurring payments more than you may realize, being used for everything from car payments and internet bills to your daily-delivered newspaper. And, though they’re fairly simple to understand from a customer’s perspective, it can be less clear to business owners if a recurring payments solution is right for them and their customers.
What are the potential benefits of recurring payments?
Recurring payments could offer a number of unique benefits to businesses and their customers.
For businesses, recurring payments can help owners estimate their future revenue for a given timeframe, as they know what payments to expect. This can lend itself to simplifying the accounts receivable process as well. Recurring payments also help to create a lasting bond between your business and your customers after the initial purchase.
For customers, recurring payments can be an ideal payment solution that helps them afford an expensive purchase through manageable increments or simplify the payment process for a recurring bill. Many business models rely on recurring payments for this reason, like financing models on new cars, or service subscriptions like newspapers and magazines.
What are the potential set backs of recurring payments?
Like many business decisions, choosing to offer recurring payments could also bring with it some challenges. When offering a recurring payment solution to customers, some businesses choose to include an interest rate with the payments. There’s a number of reasons why interest rates are included, such as to help offset the overhead, or the debt the company has incurred to supply that product. Passing and establishing an interest rate could be difficult, and would likely require oversight from both your accounting and legal teams.
Another set back with recurring payments is that there is no guarantee that your customers will have the funds required to make the payments according to schedule; with this comes the risk that payments could bounce, or be declined. This could leave your business short on anticipated revenue, and needing to collaborate with a collections agency.
Which business-types could use recurring payments?
Recurring payments are a unique payment type, and not a solution that makes sense for every business. A coffee shop for example, likely isn’t going to implement a recurring payment system for their customers, but a supplier of coffee beans that distributes to coffee shops might benefit from the convenience. Some of the business-types recurring payments might make sense for include:
- Businesses that supply raw materials or tools for production, such as a lumber distribution company.
- Other B2B focused companies that work with long-term fixed contracts for retail products, such as clothing manufacturers.
- Businesses that offer products or services were the cost is significant enough to split into portions, such as car dealerships.
Should your business accept recurring payments?
There is a lot to take into consideration when deciding whether to accept recurring payments, and there isn’t a one-size-fits-all answer. It’s important to consider whether or not this payment type makes sense for your business, your customers, and more. If you’re considering recurring payments for your business, make sure to contact a Moneris representative to learn more about your options!
Interested in learning more about the different payment types? Make sure to take a look at our articles, Virtual Terminals 101: What They Are and How Do They Work and The Top 4 Most Popular Payment Apps.