Term

What is Recurring Payment?

3 MIN READ

Recurring Payment

Recurring payment (or recurring billing) refers to the process of merchants taking money from consumers with their pre-agreed consent for a product or service with a fixed time schedule (once a week, twice a month, etc.). Examples of recurring payments are bills, subscriptions, and recurring donations.

Advantages of recurring payments

Recurring payments have some benefits, both for merchants and their clients. Firstly, recurring payments are time-saving because setting a regular payment eliminates the need to have notifications related to payments and minimizes the time on payment administration (entering payment data every time they have to pay their bills, creating invoices, etc.)

Another visible advantage of recurring payments is that they are trouble-free. In the ecommerce area, because the checkout process is automated and happens electronically, customers don’t have to worry about standing in lines and the only thing they have to do is to discuss the payment plan with the merchant. Once the plan is agreed, clients won’t have to take any additional actions, except cases when clients want to cancel their subscriptions, for example.

Last, but not least, is that while recurring payments increase customer satisfaction by simplifying their lives, it also makes it much easier for business owners. Predetermined billing dates ensure guaranteed cash flow for your venture, therefore you can plan your future budgeting with more confidence.

Disadvantages of recurring payments

Despite the fact that recurring payments are automated and easy to use, there are also some disadvantages of recurring payments. 

First and foremost, it is hard to correct a billing error in the recurring payment. In comparison with the case when customers receive an invoice with an incorrect sum and can refuse to pay the bill, recurring payments happen automatically, thus, the only possible way to solve this problem is to ask for a refund.

Second disadvantage is that clients may not know about their service being halted in case their last payment has been declined. To avoid this problem, one can set up notifications regarding charges from their bank account.

Lastly, recurring payments can only be canceled by customers so if customers stop using a certain service or install an application with recurring payments and forgets about it, they can meet unexpected charges or, in some cases, become victims of professional scammers.

 

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