What are automatic payments and how can they benefit your business

What are automatic payments and how can they benefit your business

Automatic payments are present in almost all of the industries that sustain our daily life, leisure, finance, entertainment, and more. Today in Maxpay‘s article, we want to draw attention to the concept of automatic payments, their benefits for the merchant and list some tips regarding the setup.

Automatic payment definition

Automatic payment is a type of payment that is established to cover a recurring billing process. Recurring billing is conducted each time a merchant automatically takes payment from a customer for goods or services within an agreed cycling period of time. But be aware that not every payment gateway provides an option of recurring payments, to get a payment gateway that does, follow this link.

So basically, an automatic payment is a mutual arrangement between a merchant and a customer that allows a merchant to periodically take money from a customer’s bank account. Automatic payment always obligates a merchant to obtain the customer’s official permission to collect payments automatically. Afterward, each next payment would be taken from the customer’s bank account without a special permit until the agreement is finished or till it’s prolonged.

Types of automatic payments by payment quality

  • Fixed automatic payment. In this case, the very same amount of funds is collected from a customer’s account in every charge cycle. Companies and industries that offer goods and services for a fixed price usually use fixed automatic payment.
  • Variable automatic payment. It means that the amount taken from the account can change in every charge cycle. It depends on the customer’s utilization of a certain product or service. In this case, a recurrent bill is issued for each cycle.

Types of automatic payments by industry

  • Subscription. One of the most common types of automated payments. Subscription includes any service or product that is available to a customer not by purchasing an item, but by purchasing a subscription. For example, a movie streaming service can offer a subscription in exchange for its content, an application for a smartphone usually charges by subscribing, and often various professional software does the same. 
  • Membership. It’s a payment that is taken to offer a client a special type of service or product, or access to it. Membership can be commonly found in delivery companies for rapid transportation, in the aviation industry to propose special favors, in makeup online stores to deliver personalized goods at a better price on a scheduled basis.
  • Government and municipal services. Governmental services can charge citizens regularly for such things as taxes and utility bills, both can differ in the price of each payment cycle. Exact examples would include bills for electricity, water, and building services.
  • One-on-one services. One-on-one services refer to professional and business assistance, including but not limited to any legal help, tutoring, childcare, cleaning services, coaching and personal training, and any other kind of one-on-one service that is occurring on a scheduled basis. 
  • Financial services. Automatic payments can have a significantly important role in private finance, especially in saving and retirement planning. For example, a customer can manage a reoccurred loan payment to ensure that he or she does not go into default.

Industries and companies where automated payments are often used

Real estate
Phone and internet companies
Healthcare services
Education institutions
Governmental institutions
Aviation companies
Streaming services
Big online stores
Delivery companies
Beauty industry
Applications and software

How do automatic payments work?

With credit card automated payments, a customer permits a merchant to take money for each billing cycle during the mutual agreement. First of all, a customer must opt for a merchant’s agreement regarding recurring billing. It includes the information about offered goods or services, the amount of money that would be taken each payment cycle, or the way it would be calculated (in the case of variable automatic payment), the length of a payment cycle, and the information about cancellation of the automatic payment agreement.

After, a customer provides a merchant with the bank account details and authorizes them to keep this payment data for future repeated transactions. From the moment of the setting up of an agreement, a customer is subscribed to automatic payments.

Benefits of automatic payments

  • Customer retention. Automatic payments do indeed make customers stay longer. It is not necessarily because they forget to cancel the recurring payment agreement, but mostly because an automatic payment allows them to stay with the company without missing the frequent payment.
  • Ensures fast payment. As a customer authorizes a merchant to keep the payment data and take funds automatically, it saves them time and makes each payment precise with its schedule.
  • Ensures good credit history. A merchant that receives recurring payments does look better in the eyes of acquiring banks, as these transfers ensure money flow for a certain period.
  • Improves cash flow. Same as with a good credit history, it is very beneficial for a bank account to be paid frequently and precisely on a scheduled basis.
  • Lowers billing and collection costs. With automatic payments, a merchant has a chance to provide a customer with special offers, discounts, and other services to make the product more attractive.
  • Keeps records in order. By collecting payments frequently and repeatedly, a merchant can automate invoicing. And also, to keep track of the payment details, and sales for recordkeeping purposes.
  • Improves planning and marketing. When customers make purchases on a scheduled basis, it helps with planning for the entire budget, and also gives data for the marketing and sales analytics.
  • Saves customers time. At last, a customer does not have to input the payment and personal data each billing cycle to keep the attachment to the company’s goods and services.

What to consider when setting up automatic payments for your business

The first thing that a merchant must consider is selecting the right payment gateway or a payment service provider. The thing is that not all of the providers offer recurring billing in their services. For example, such a well-known PSP as PayPal does not provide merchants with automatic payment collection.

The next thing to look for is active reporting. We strongly advise choosing that payment provider that includes in its services detailed reporting. This feature is useful for a merchant because it uncovers insights into the business. Along with active reporting, payment options are quite important as well. A merchant needs to offer those payment options that are popular in the area or among the target group.

We also recommend checking if there are upgrade options and members management. The first parameter allows a merchant to upgrade a customer’s plan easily with one click and without re-entering the payment data. The second one refers to the inner tracking of the members. The option allows a merchant to view and edit the list of automatic payments, manage invoices, and other attributes.

If you are looking for a reliable, secured, and well-designed payment gateway service provider, check out Maxpay. It offers merchants a full payment cycle setup, and it provides payment acceptance of many currencies, alternative payment methods, seamless checkout with full customization. Besides that, Maxpay has a fraud prevention service and complies with major regulations. To discover more services, visit our website.