Schedule payments can be regarded as a regular standard or recurring payments. They are executed on a recurring basis as specified by the payer. Most customers prefer setting in scheduled payments to maintain track of the respective expenses while not missing out on any important payments.
A scheduled payment also goes by the name ‘recurring payment.’
An Insight into Scheduled or Recurring Payments
From high-end digital services to utility, magazines, and software solutions -the model of subscription-based services tends to be immensely popular nowadays. The overall popularity of the subscription-based model is because of the steady cash flow along with other additional benefits that are available with scheduled or recurring payments.
As these payments tend to benefit both customers and businesses, these forms of payments are gaining immense impetus across the world. With scheduled payments, business owners are able to receive the respective payments on time. At the same time, they are able to minimize the overall administrative costs in association with payment delays. Moreover, customers are not expected to open or act on the respective invoices upon every billing cycle.
Once the scheduled payment has been set properly, the funds will get deducted automatically from the accounts of the customers on time -saving them from potential penalties related to late fees.
What is the Meaning of Recurring Payments?
Recurring or schedule payment serves to be a model wherein customers go ahead with authorizing the merchant to extract funds from the respective accounts automatically at regular periods for the products or services provided to them on a constant basis.
Once the customers offer permission, the amount gets deducted automatically at pre-specified intervals until the customer retracts the permission or the expiration of the subscription takes place.
What are the Different Types of Recurring or Scheduled Payments?
- Fixed or Regular Recurring Payments: With this type of payment, the customers are typically charged the same amount every time. Some of the common instances of regular or fixed recurring payments are magazine or gym subscriptions.
- Variable or Irregular Payments: With this type of scheduled payment, the amount that is charged out of the customers remains subject to changes depending on the utilization of the particular products or services by the customers. For example, electricity and other types of utility bills that keep changing every month depending on the consumption fall under this category of payments.
Working of Scheduled or Recurring Payments
Recurring or scheduled payments are gathered collectively and automatically from the bank accounts of the customers through their payment cards. Other methods can also be used -including Direct Debit or ACH fund transfers. For accepting these payments, businesses are expected to own a dedicated merchant account along with access to a reliable payment service provider.
A merchant account refers to a bank account allowing businesses to accept payments from the accounts of the customers. The amount that is debited from the accounts of customers is deposited initially in the respective merchant account. Later on, it is transferred to the bank account of the business.
The payment service provider is responsible for handling different modes of payment processing right from the collection of recurring payments on the merchant’s behalf to processing the same securely and even depositing the amount in the bank accounts of businesses.
While different scheduled payment processes will feature diverse workflows, they will typically follow relevant steps as:
- A customer choosing the scheduled payment mode from the available list of payment options.
- The customer accepting the existing terms & conditions linked with the option of recurring payments.
- For making the initial payment, the customer will go ahead with entering the respective card details. These details are saved securely within the payment gateway page for making subsequent transactions.
- An invoice is sent to the customer upon every billing date as per the pre-defined schedule.
- Quite similar to the credit card transaction, as the issuing bank, credit card network, and acquiring bank will give approval for the transaction, scheduled payment takes place. Eventually, the funds are transferred directly to the merchant account.
- Upon the occurrence of scheduled payments every time according to the pre-defined billing schedule, the customer is notified about the transaction status. In case the payment will fail, the customer is also expected to follow the specific set of instructions.
- In this manner, the customer is not expected to enter the payment details all over again. The subscription fee is charged until the subscription gets canceled.
Benefits of Scheduled Payments for Your Business
- Minimizing Late Payments and Collection Time
For any business out there, late payments can have an adverse effect on the overall growth and revenues. As a matter of fact, late payments also affect customer relationships. With the help of scheduled payments, you can consider setting up the entire system once. Eventually, you can be assured that the collection of payment will be repeated automatically on the respective pre-defined schedule.
As a result, your business will invest less time in reaching out to customers to ensure payments. Businesses can also avoid awkward conversations about the topic of late payments. In turn, it leaves more time for other core business tasks.
- Reducing Efforts
Automated scheduled payments help in cutting down the overall costs as well as efforts in association with payment processing and manual invoicing. All you are expected to do is to set up the original payment plan just once. Eventually, the software solution will be responsible for handling payment processing for your account. Your involvement is only needed when you are expected to make changes to the amount charged and the payment type.
- Improving Customer Relationships
Scheduled payments tend to be highly flexible and convenient for end customers. It is because they are only required to enter the respective billing information -just once. Scheduled payments will take up information from there while deducting funds from the bank accounts effectively while deducting payments from the customers’ bank accounts on the given billing dates.
Customers are not required to specify any reminder for paying outstanding bills or even entering the payment details on every billing cycle. When implemented correctly, scheduled payments can help in creating a notion of goodwill between customers and the business -ensuring a healthy and long-lasting customer relationship.
- Protection Against Fraud
The utilization of integrated payment gateways for processing scheduled payments helps in storing the payment information offered by customers in a secure manner in the respective servers. They offer protection against fraud with high-end practices like PCI DSS (Payment Card Industry Data Security Standard) and tokenization.
These methods of fraud detection and prevention can help in defending your funds against fraudulent intentions. At the same time, these methods also help in reinforcing a positive image of the business in front of end customers while saving ample resources that might be otherwise spent on looking for a solution to fraudulent transactions.
Businesses Leveraging Scheduled Payments
In the modern era, the model of scheduled or recurring payment is driving ample growth in a wide range of industries. Here are some common use cases:
- Utility Providers: Offering a scheduled payment option for paying utility bills and taxes will make sure that these bills are collected properly. Most utility providers offer scheduled auto-payment options to taxpayers making business tax or personal tax payments to the IRS.
- Membership Businesses: Most types of membership businesses leverage the concept of recurring payments -like co-working spaces, gyms, and learning courses. In this model, customers are charged a particular amount for the respective membership on either monthly or annual intervals.
- Subscription Businesses: An increasing number of businesses are now utilizing the subscription model. It can be made available in services like streaming media and newspapers.
- Financial Services: Scheduled payments can be utilized in the concept of personal financial services. In this mode, a fixed amount is deducted from the salary account of the customers while being transferred for paying loan repayments, general insurance, or even mutual investments at fixed intervals.
With the given arrangement, the financial service provider is not expected to follow up manually with the customers for asking how much they would like to debit from the bank account monthly.
The system of scheduled payments is convenient for both businesses and customers. It not only enhances the overall positive customer experience by minimizing the friction occurring with repeated delays and payments due to manual methods. At the same time, it also ensures the delivery of a stable cash flow for the entire business. When you are running a business wherein you tend to collect payments on a repeated basis out of customers, then it is worthwhile to give the model of scheduled or recurring payments a try.