Subscription models and recurring payments

recurring payments

Recurring payments bring businesses higher revenues. Because of its security and automation, this system stands out from the single payment models associated with the sale of personal property. One example of this is customers with a stripe subscription accessing a corporate page to make payments.

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What does recurring payment mean?

Consistency is what sets recurring payments apart from their complementary mode: one-off payments. When you make a one-off payment, you often receive one or more products immediately. If you want to buy another product, you have to make another transaction.

Invoicing in these cases is subject to that particular day and the circumstances surrounding the purchase. For example, the level of concentration of the employee preparing the invoice or the operation of the machine issuing the invoice.

In a recurring payment, there is usually a prior agreement between the business and the customer called a “plan”. As part of its services, the former must provide the latter with a product from time to time. 

Or the customer can enjoy a service provided by the business as many times as they wish until it is time for the next payment. This may be medium-term, for example, three months, or it may be long-term, as with annual payments.

When the cost is fixed for a predefined time, recurring billing provides a much more secure alternative for both parties: business and customer. The invoice will be issued electronically each time the subscription expiry date approaches. This tends to be monthly.

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What types of businesses use recurring payments?

Usually, businesses that implement subscription payments the most are those that provide software as a service (SaaS). Great examples are Microsoft, specifically in its Microsoft Office 365 line, and Adobe Creative Cloud, with its suite of design and editing programs. These are made available to designers, architects, producers, etc.

However, you may have noticed that for a few years now the names that appear most in terms of PayPal subscriptions and recurring payments are streaming platforms. Netflix, HBO and Disney+ are just some examples, where customers can access large catalogs of audiovisual productions for a fixed monthly cost.

Despite the fame of these brands, there has also been a boom in academic organizations that operate based on recurring payments. Online schools and certain institutions provide access to digital content, such as videos, books, and personalized classes. 

Journals, whether scientific or not, that give their readers the option of signing up to quarterly newsletters, catalogs, interviews, talks, or reviews are common. Some of them even allow you to choose the topics to be published in their upcoming issues. The same is true for some publishers.

The provision of essential services has long been a periodic billing business. Electricity and drinking water are the big global examples, but products have been in this category for more than a decade. 

You’re probably thinking of Amazon and its Prime subscription online. This is certainly one of the most well-known examples. It enables customers to receive orders more quickly, access audiovisual material, as well as other advantages.

Businesses almost always organize their services in a staggered way. Compared to an initial plan, there are more expensive plans that include more benefits. Thus, recurring charges are kept at a fixed rate for as long as the customer wishes to maintain their subscription. However, other benefits of maintaining it usually include discounts and promotions.

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What are the types of recurring payments?

Generally, a service requires more accurate measurements than most. This is particularly the case with data supply or energy sources, where some customers’ usage may be very different from the others in terms of frequency. 

For that customization parameter you might feel the need to define a regular or an irregular periodic payment for your business.

Regular or fixed recurring payments

In each payment cycle, whether monthly, quarterly, semi-annually, or annually, the rate payable by the user of a service is invariable.

The cost is fixed from the moment of signing up. The customer agrees with the company to select the plan that includes the benefits they wish to receive.

From that moment on, the amount you will be billed will remain accurate until you decide to change your plan or terminate your subscription. This is how it happens not only with platforms like Netflix, but also in systems like WordPress. And some examples outside the digital world would be memberships in clubs or gyms.

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Irregular or variable payments

Of the two alternatives, the irregular periodic cost is the most personalized for your customers. In addition to telecommunications, we can again include basic services companies in this. In many countries, electricity is not paid for on the basis of a standard tariff, but according to the consumption of each home.

If during a month the user turned on very few light bulbs at home, then the price to be settled will be much lower than that of the previous month. But even then, a bill will arrive approximately every thirty days. 

This means that even if the cost is irregular, it will still be a periodic payment. The business uses usage measurement software to determine the figure for each customer.

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How do recurring payments work?

These payments work as follows:

  • It promotes a constant flow of income to a list of specific data or beneficiaries.
  • Payments can be structured in different time periods: monthly, annually, semi-annually, weekly.
  • These payments are set up in the system to issue salary payments, payments to suppliers, performance results, customer consignment, among other things.

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