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Updated Apr 11, 2024

How to Accept Recurring Payments

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Max Freedman, Business Operations Insider and Senior Analyst

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Think about seeking payment from clients or customers who use your services on a regular basis. What comes to mind first? Maybe you’re at once appreciative of your customers’ loyalty but annoyed about some late payments. Often, these late payments aren’t intentional. Clients and customers have a lot going on and can easily forget to pay your invoices. Knowing how to accept recurring payments solves this problem, so we’ll walk you through the process.

What are recurring payments?

Recurring payments are any credit or debit card payments that your company automatically receives on a regular basis. They’re different from a customer or client handing you their card or filling in their information online every time they make a purchase or renew your services. Instead, your third-party payment processor keeps the customer’s or client’s payment information on file and charges it on a recurring basis.

Recurring payments can happen monthly or annually, as is common in small business affairs. Less commonly, recurring payments can occur weekly or daily. You also have the option to let recurring payments go on forever or end them after a certain date.

Key TakeawayKey takeaway

Most small business recurring payments are monthly or annual, but they can be weekly or daily in some cases.

How do recurring payments work?

Recurring payments work through your business’s third-party payment processing company. These third parties enable your business to accept credit or debit card payments. There are also two kinds of payment processors: payment service providers and merchant accounts. The former oversees all processing, securing and depositing of your customers’ or clients’ funds. The latter is solely for depositing funds.

In either case, your payment processing company will trigger a recurring payment by contacting your bank. The company will then contact your customer or client’s credit or debit card network as well. Thereafter, the network will check with the card’s issuing bank to see whether the transaction is valid and funds are available. 

Editor’s note: Looking for the right credit card processor for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.

If all appears legitimate, the network will approve the transaction with your payment processor. After a one- or two-day hold to counter fraud, you’ll have your funds. Some payment service providers eliminate this hold period, though this advantage comes with extra fees.

What are the benefits of accepting recurring payments?

These are some of the benefits of accepting recurring payments.

  • Fewer late or missed payments: Let’s say your customers or clients pay you on a regular basis. With recurring payments, the customer no longer has to remember to pay you. Instead, they’ll have their funds automatically withdrawn and sent to you. The result is the near-elimination of late or missed client or customer payments.
  • No need to ask customers or clients for payment: Every small business owner likes earning money, but few enjoy pestering clients for payment. With recurring payments, you’ll get your money automatically without having to ask for it. That means greater cash flow and fewer headaches.
  • Easier accounting and invoicing: Often, recurring payment platforms can integrate with your accounting and invoicing systems. In this case, a recurring payment can trigger the creation of an invoice and the recording of a credit in the appropriate general ledger account. That’s less work for you and more accuracy in your billing and accounting.
  • Easier accounts payable for clients: When clients know their funds will be withdrawn on a certain date, they don’t need to check their accounts payable to square up. Instead, they can sit back and watch as their accounts payable is credited and their cash account is debited. Plus, if their accounting, invoicing and payment processing are integrated like yours, then your recurring payments will truly perfect their operations.
  • Hassle-free restocking for customers: Let’s say you operate a B2C company that sells tangible products that become unusable after a certain period. Your customers will then have to find the time to buy new products from you. Recurring payments solve this problem. They automate customer payments and the addition of new customer shipments to your inventory management software.
  • Option for subscription models: If you subscribe to a magazine, newspaper, or digital publication, you’re probably already familiar with recurring payments. Think about how useful they could be for your business. With a monthly payment, your clients could maintain hassle-free access to your platform. More efficient, customer-friendly business is possible, if not probable, with recurring payment subscriptions.

Types of recurring payment structures

Recurring payments typically fall into two broad categories, both of which have a few subcategories.

1. Fixed recurring payments

Customers or clients who make fixed payments send you the same amount of money with each payment. Common examples include monthly donations to nonprofits or subscriptions to publications. They also include customer product subscriptions, as the shipping fees you pay or defer to the customer shouldn’t change between orders.

2. Variable recurring payments

Variable payments are less common than fixed ones, though you’re likely familiar with them from both your business and personal life. The most obvious example is your utility bills. Surely, you’re not using the exact same amount of electricity, gas or water each month. As such, your monthly costs will vary, as will the size of any recurring payments you’ve made. 

In small business, most products and services are constant in pricing, so variable recurring payments are infrequent. However, for service providers whose offerings vary in quantity (i.e., a tutor who sometimes provides two hours of tutoring instead of one), variable recurring payments may be better.

Key TakeawayKey takeaway

Variable recurring payments are somewhat rare in business, though they can benefit your company in certain circumstances.

Solutions to set up recurring payments

There’s no one way to set up recurring payments for your business. Instead, the steps you’ll take will vary based on your credit card processor of choice. We’ve explained how to accept recurring payments with a few of our reviews of the best credit card processing providers.

Clover

Clover is our favorite two-in-one point-of-sale and credit card processing platform. You can use Clover’s virtual terminal to accept and process payments entirely digitally. Just log in to the Clover web dashboard and accept all pending transactions. You’ll pay a fee for this service (including a 1% rate to optionally avoid the one- or two-day hold). 

Beyond its tools for accepting recurring payments, Clover has all kinds of business-friendly features. You can use Clover to create gift cards, generate sales reports, build an e-commerce website and more. Clover also offers merchant cash advances that can help you obtain extra funding for your business.

TipTip

To learn more about the myriad ways Clover facilitates small business affairs, read our Clover review.

Merchant One

Merchant One’s credit card processing is our top choice for businesses that need easy approval to start using credit card processors. You can access Merchant One’s payment processing services anywhere you can access the internet. The platform also includes an invoice generator and a QuickBooks plugin to fully integrate your recurring payments. You’ll get payer authentication and anti-fraud tools as well. 

When you use Merchant One to accept recurring payments, you pay a monthly fee that starts at $6.95 for the company’s introductory plan. Your processing fee for swiped transactions will range from 0.29% to 1.99%. For keyed-in transactions, the maximum decreases to 1.55%. No matter how you enter customers’ card information, you can securely store it in your Merchant One customer vault. 

Fattmerchant

Stax by Fattmerchant is our top credit card processor pick for small businesses. On its dashboard, you can create recurring invoices that generate recurring payments. You can find tools for this in the Advanced Payment menu. Just set your invoice amount and charging frequency, then determine whether you’ll automatically withdraw funds or send customers a “click to pay” link. 

Fattmerchant costs between $49 and $129 per month. If your company processes less than $80,000 in annual credit card transactions, each transaction has an additional 2.9% fee. Keyed-in transactions incur an additional 15-cent fee per charge, and the corresponding fee for swiped transactions is 8 cents. These are the only fees you’ll pay; Fattmerchant lacks the hidden fees common with other brands. 

Payment Depot

If you expect to process a high volume of recurring payments, Payment Depot is our top choice for your business. Its uncommon model of membership-based pricing and wholesale rates can keep your costs lower than paying fees that increase with transaction volume. Like ProMerchant, Payment Depot doesn’t bind you to long-term contracts, meaning you can switch easily if you’re not happy. 

This guide should help you decide which credit card processor will best fit your recurring payment needs. Once you do, easier accounts receivable management is right around the corner.

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Max Freedman, Business Operations Insider and Senior Analyst
Max Freedman has spent nearly a decade providing entrepreneurs and business operators with actionable advice they can use to launch and grow their businesses. Max has direct experience helping run a small business, performs hands-on reviews and has real-world experience with the categories he covers, such as accounting software and digital payroll solutions, as well as leading small business lenders and employee retirement providers. Max has written hundreds of articles for Business News Daily on a range of valuable topics, including small business funding, time and attendance, marketing and human resources.
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