3 things to know about recurring billing

Posted on 28.3.2017
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Written by Eva Ciga

For those that still wonder what is recurring billing, the answer is that recurring billing is a useful feature that is available by most payment getaways in order to automatically collect fees from cardholders or vendors. Recurring billing is recommended for charging fees that need to be applied on a regular basis, such as, subscription payments and memberships. As opposed to one-off sale transactions, where a cardholder generally purchases a one-off product or service.

How does recurring billing work?

Firstly, a customer profile is generally created on a merchant’s website, containing the name of the client, and billing information. The merchant would share information about the schedule of payments, frequency and duration of the payment, generally called, a rebill cycle. Take Dropbox as an example, at the time of writing, a monthly subscription is priced at € 8.25. Once subscribed, Dropbox automatically charges that amount on a monthly basis. When a website offers a subscription based service but requests a cardholder to manually pay the subscription every month, chances are that the payment gateway or payment processor does not support rebills. It is a headache for the cardholder, but it is also safer for both the merchant and the cardholder. We’ll get to that later!

Recurring billing is ideal for those types of transactions that require charging on a regular basis, like membership fees, cable TV bills, magazine subscriptions, software services and a myriad of other services. Once the cardholder initiates their first sale, following rebills are applied automatically without the need to handle the process on the merchant’s website. Although most of the process is automated and supplied by the payment provider, it is suggested you notify your cardholders. Sending notification emails before the rebilled amount is taken from the cardholder reminds the cardholder in question about the payment. This approach radically reduces the chances for any chargebacks or retrieval requests. Each time a ‘rebill’ comes into effect, the merchant is charged as if it were a regular transaction.

What if the payment gateway does not support recurring billing?

If you offer a subscription-based product or service, it is more of a headache to the cardholder, but it also directly affects the running of your business. Recurring billing facilitates payments for membership or subscription based services, but cry not, there is a somewhat of a less effective way to replace recurring billing. Have a notification email sent out to the cardholder a period before the subscription is due if need be, send more than one. True, it is an old-fashioned way of doing things, but it also brings some minor benefits

What are the downsides of recurring billing?

Recurring billing is applied to subscriptions and memberships. One is an increased risk of chargebacks. Why? For non-essential products or services, the cardholder might forget or not realise that they will be charged every month or so. Therefore, when the cardholder sees a transaction on their credit card statement that they do not recognise, they will inquire with their bank. This inquiry may lead to a retrieval request, or even worse, a chargeback. Therefore, it is highly suggested to clearly state the frequency of payments to the cardholder, and if possible, remind the cardholder prior to the payment being made.

Higher fees. Certain businesses are charged more when recurring billing is requested. This is somewhat related to the first point. Since risks could potentially be higher, a payment processor might charge higher fees. This is not a rule, but it is common.

To conclude, not every payment provider supports recurring billing or is willing to grant you recurring billing, therefore, if you have a subscription based business, make sure you ask, or be prepared to implement an alternative.

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