If you're offering services based on cyclical payments, then
recurring payments (also known subscription payments) will help you work and
not worry about forgetting sending your customers a payment notice. Recurring
payments come in handy if your business requires subscription fees for the
content of a news site or there is a membership fee. Subscription payments are
also useful in completing simple payments like power and water bill.
What are subscription/recurring payments?
In short, subscription payments are what happens when a
certain amount of money is automatically withdrawn from card or from a client's
account, this usually happens in a periodical manner. In practice we can
outline three types of recurring payments.
Standing Order
This is a payment where a fixed amount of money is withdrawn
from a client's bank account in fixed time periods. This mechanism works well
for example, when paying bills online or in case of membership fees. Constant
orders are initiated by the owner of a bill, not the actual party that's
awaiting payments.
Constant orders are popular in many countries but can vary
from one to another. In Germany this type of payment can be set to a certain
amount of payments, time period, or for an indefinite amount of time (until
cancellation). In the Netherlands only the last option is available. Whereas in
Spain it's mandatory to define in what time period payments will be made.
In case of countries where checks are more popular than
transfers (e.g. United States), there is a service that works similarly to a
standing order. A bank automatically sends a check in the name of a person that
is making the payment.
Direct Debit
In comparison to a standing order, direct debits allows for
cash withdrawal from a customer's bank account in irregular time periods and
with differentiating amounts of money. A good example of a direct debit can be
an electricity bill, the amount owed can sometimes change from month to month.
A direct debit is initiated by the party that is expecting a payment, that is
why there may be a lack of consistency in dates and amounts of charges.
Every country has its own guidelines for direct debits. The
only exception to this rule is the SEPA (Single Euro Payments Area) region
which extends over countries within the European Union. In this region all
transactions done in Euro are regulated and simplified.
SEPA standards became active as of February 1st 2014,
however the European Commission has given a six month transitional period.
In the United States direct debits are done through ACH
(Automatic Clearing House).
Subscription payments using a card or e-wallet
In this case, money is not withdrawn from a bank account but
rather from a card or an e-wallet (e.g. a PayPal account). This type of
recurring payment is most popular in the world.
What do recurring payments with a card look like
Using a card to pay for subscription payments is possible
only if customers fill in their card data in the shop itself, either by making
a purchase or by registering on a website to start using their services. The
frequency and method used to withdraw funds from an account is based solely on
the web stores business model, what it means is that a card can be charged
weekly, monthly, or annually. A card may also be charged only when a customer
reaches a certain amount of money due.
From a technical point of view, subscription payments draw
back to a previous transaction that was triggered by a card. It is advisable to
reference the last made transaction, this will aid in tracking the payments
flow.
For more information on how you can integrate subscription
payments with cards, check out Awepay Website.
What are subscription payments' limits?
Although recurring payments that rely on a card don't have
any limitations (Maybe with the exception in a situation when a card expires),
other type of recurring payments may be limited by the law of a given country
or procedures adapted by a specific payment provider.
Standing orders and direct debits are completely automated
the SEPA region, whereas in Poland they require submitting a disposition in the
customers bank. However, the availability of cyclical payments with the use of
e-wallets is entirely up the service provider and may be limited by regions.
The advantages of subscription payments
For businesses offering services that require subscription
payments, especially ones where a card may be used, this is an ideal solution.
From a shop owners point of view, following through with
recurring payments allows them to have a peace of mind. Customers will no
longer forget to pay for services when they are due and the consistency will
increase income.
For customers the availability of automated payments is also
important: they don't have to worry about remembering due dates, because all
their payments take place without customers' intervention.
Summing up, if your business model is based on repeated payments
for services, content, subscriptions, licenses, membership, etc., then
recurring payments can be a great help to your business! They make sure that
your incoming payments are always on time, which in turn means financial
stability. Your customers will be able to use your services without worrying
about being cutoff because of a forgotten payment, whereas you save time and
effort by not having to remind your customers about their payments dates.
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