Recurring Payments and Subscription Billing

Recurring or subscription billing gives you the confidence of a semi-guaranteed income. It makes managing your finances a little easier, lets you plan for the future, and gives you a cushion against financial shocks.

When you understand how many new customers you’re taking on, and how many you’re losing (the “churn” rate), you can also use it to project future cash flow and plans for expansion. In short, recurring billing is a solid way to manage and grow your business. With newer “account updater” technologies, it’s also more hands-off than ever.

What is recurring / subscription billing?

Recurring and subscription billing lets you charge your customer’s credit card on a regular basis for ongoing services or products that you provide. For example, you might charge monthly, quarterly, or annually. It’s ideal for businesses that offer ongoing services like gym memberships or regular delivery of products, such as subscription boxes. Your customer only has to input their details once, and a recurring billing service takes care of the rest. Recurring billing is a common way to take payments online for repeat services.

Typically, businesses will offer different levels of plans with varying subscription costs depending on what the customer needs. These plans are often discounted if a customer pays for services for six months to a year in advance.

How do I set up subscription / recurring billing?

Assuming you have a business that provides products and services you can sell on subscription, there are various different ways to bill on a regular basis:

  • Through your payment processor
  • Through your ecommerce solution
  • Via a third-party service or app

Through Your Payment Processor

Many payment processors that process one-time transactions also offer recurring billing. These include popular online payment aggregator services like Braintree, PayPal, and Stripe or traditional merchant account solutions like those offered by CardFellow’s member processors. If you’re looking for recurring billing options, you can get quotes using our quote comparison tool.

Different processors may have different features available with recurring billing, such as the ability to automatically update cards, or to prorate payments if the customer changes their plan.

If you want a more thorough comparison of two of the popular recurring billing payment providers, you can read our extensive breakdown of Braintree vs. Stripe.

Through Your Ecommerce Solution

There are three big ecommerce solutions that let you setup online stores – Shopify, Volusion, and BigCommerce. Here’s how they handle recurring subscriptions:

Shopify handles recurring payments and subscriptions through third-party apps in their app store. Popular apps include: Chargebee Recurring Billing, Charge Rabbit, and RecurHub.

Volusion has recurring payments built into the platform. Previously, they published a thorough knowledge base article, but many of those links and articles now require login.

BigCommerce offers recurring billing through integrated apps including Rebillia.

Related Article: Shopify vs. Volusion vs. BigCommerce.

Via a Third-Party Service or App

There are several third-party apps that will integrate with your existing payment processor to give you more options for your recurring billing. The better known ones are Recurly, Maxio (formerly Chargify), and Staxbill (formerly Fusebill.) These are not necessarily payment processing services themselves – rather, they enable recurring billing with your payment processor.

Using a third-party service may be your only choice if your processing company or ecommerce platform doesn’t offer a subscription billing option. However, remember that adding a third party service may come with additional charges. Some recurring billing services charge a percentage of volume while others may charge a per-transaction fee. If you’re not careful, those costs can add up quickly. Instead, it may make sense to look for a processor who can support recurring payments directly.

Data Portability

A seemingly small but important component of recurring billing is data portability, which refers to the ability to transfer clients’ stored card data if you switch processors or gateways. Some processors don’t allow you to take the data, which is often a big enough hassle to deter clients from switching, even if staying with the current processor is more expensive. Think about it – if you have dozens (or hundreds) of customers, all with information on file, it will take a lot of time and effort to collect all the card information again.

A processor that doesn’t allow data portability is effectively holding you hostage to their solution, hoping that you’ll stick around due to the inconvenience of switching. At CardFellow, we strongly suggest working with processors and gateways that offer data portability. It’s better to work with a company who will let you leave without major hassle if you need to.

Some companies, like Braintree, promote on their sites that they offer data portability, believing your data belongs to you. If the company doesn’t publish it, be sure to ask before signing up.

How do I integrate recurring billing into my business?

There are various ways to put recurring billing in place.

Set It Up Yourself

If you’ve got the knowledge and expertise, several of the recurring payment solutions make it easy to create membership plans, add the details, and give you the right code to show them on your website. Read through the various knowledge bases and try out some of the subscription payment processors and apps to see how easy they are to implement.

Hire a Developer

If you need a more complete solution, have multiple payment gateways, or need deep, customized integration, you will probably need to hire a developer. There are lots of developers who specialize in putting payment gateways and businesses together, including subscription billing.

Try asking in business forums and the various freelance marketplaces to find the right developer for you. Ask to see what subscription billing solutions they’ve created in the past.

What is automatic credit card updating?

Automatic updating for recurring billing is a great service, natively supported by Braintree, Stripe, Recurly, and others like TSYS and Chase Paymentech. These providers work with credit (and debit) card companies to automatically update your customer’s card details when they expire or change due to card reissuing. Rather than discovering a card has changed because the recurring transaction is declined, you’ll usually see less declines in the first place. This means your customer doesn’t need to manually enter their card details when they get a new card, and you don’t need to chase them down. There’s no interruption in service, and the recurring billing is effortless for them and for you.

Card changes are a possible source of lost revenue, as it’s easy for customers to decide to cancel rather than update a card. You can potentially save some of that revenue by utilizing an automatic card updater.

Costs for Automatic Updater

Like most things in processing, costs for automatic updater vary by processing company. In researching the options, we received a pretty big range of difference in pricing. Braintree assured us that automatic updater is built in to its current flat rate costs and there would be no additional fees while Bank of America quoted an exorbitant setup fee ($2,500!) and a separate per-transaction fee every time account updater is used.

Popular universal gateway Authorize.Net charges 25 cents per updated record, but does not charge a monthly fee or setup fees.

Be sure to ask about account updater fees when comparing processors, and if you need help, fill out CardFellow’s free, no-obligation quote request form.

Is there anything else I need to know?

Yes, here are a few other areas it’s worth thinking about.

  • Free trials – If you want to offer a free trial, choose a solution that has the functionality built in. However, be aware that free trials may have additional rules. We discuss this more in the next section on Mastercard’s free trial policy.
  • Handling card declines – Declined cards take time to resolve and can eat into your profits. Look into your subscription billing solution carefully to see how it handles declined cards. (E.g. retrying later, sending you a notification, offering alternative ways to pay, etc.)
  • Integration with other systems and apps – In some cases, you’ll want to pass information to and from your repeat billing service. Look at the integrations offered by the service you choose, and how much effort (and expense) it will be to integrate with other technology.
  • Working with accounting software – Reconciliation and accounts are just a part of life. It gets easier if your recurring payment solutions work with your accounting apps. Check if they have built in support for Freshbooks, FreeAgent, or whatever accounting software you use.

Recurring and subscription payments are an excellent way to add some financial security to your business. Try out some of these solutions, and read through the support bases or FAQs. You can then introduce the right subscription service for you, increase your repeat customer base, and grow your business.

Free Trials

Many businesses offer a “free trial” and require a credit card for signup. A common practice is to then charge the customer’s card automatically at the conclusion of the free trial if they haven’t cancelled. Cardholders dislike this policy, and the card brands have taken notice.

Mastercard’s Policy

In early 2019, Mastercard announced changes to automatic billing at the end of a free trial period. The company explained on its website that it doesn’t want consumers to get unwittingly locked into a recurring charge because they forget to cancel a free trial. Mastercard says: “However, sometimes a free trial of a skincare or healthcare product can unwittingly turn into a recurring product subscription that is difficult to cancel. These situations can be frustrating and costly for both consumers and their banks. ”

As the business, you’ll be required to:

  • Secure approval from the cardholder at the end of the free trial BEFORE billing.
  • Send the cardholder (by email or text) the total amount, payment date, and business name.
  • Send the cardholder clear instructions for cancelling the free trial to avoid being charged.

If the customer chooses to subscribe and pay for the product at the end of the free trial, you’ll need to send the cardholder a receipt for each payment (again by email or text message) with instructions on how to cancel to avoid further charges. Mastercard will also being including the business’s website URL (or phone number) on the cardholder’s billing statement.

Mastercard’s policy only applies to free trials of products and subsequent recurring billing. It does not apply to services.

Visa’s Policy

In late autumn 2019, Visa announced a similar free trial policy. However, Visa’s rule applies to services as well as goods. Visa states that free trials the “roll over” into subscriptions or charges have frustrated consumers. The updated policy aims to make cancellation easier and increase cardholder satisfaction.

Businesses are required to provide confirmation to the cardholder that they’ve agreed to a subscription unless they cancel. The confirmation must include the subscription start date, details of the goods or services purchased, the transaction amount that will be billed and the billing frequency, and a link to easily cancel future billings. (The cardholder MUST be able to easily cancel online, regardless of whether they initially signed up for the trial online. Visa states that cancellation should be on par with the simplicity of clicking an unsubscribe button to stop receiving email notifications.)

Additionally, the business must send an electronic reminder at least 7 days prior to charging if a free trial period has ended.

3 thoughts on “Recurring Payments and Subscription Billing”

  1. I’ve used Recurring Orders on the Shopify platform to manage my monthly subscriptions and it has been pretty robust. I wasn’t sure how to install the app on my store and their Support team was pretty quick at getting me setup and running. There is seriously nothing sweeter than knowing your recurring sales cycle on a product and customers seem to like it as it takes the hassle out of re-ordering.

  2. I have always been curious how interchange fees are processed for recurring billing / payments. Would it be processed at the same rate every single time depending on what the initial form of payment was? (i.e. swiped vs. manual entry, matches for zip code, address, etc.) Would anyone have information on this?

    I am curious since one mistyped entry (i.e. zip code) gets processed at a high interchange rate, all future payments will be the same.

    Thank you!

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