Though both recurring payments and subscription systems share some similarities, they are still distinct from one another. Choosing the best one without knowing the concept behind them both is challenging.
With the rise of digitization and e-commerce, the demand for flexible payment options has also increased. Some businesses and customers want a subscription system, while others prefer recurring payment models. Let’s check what is the best model for your business to receive online payments.
This post will guide you with this aspect. You will know the difference between recurring and subscription payment options. Read this and select the one that fits well for your business.
What is a recurring payment system?
Recurring payments involve an auto-pay system that works with a one-time payment setting. Consumers have to provide you with the details of their payment method, usually debit or credit card. Then the whole thing is on your system. It has to save the details and automatically transfer funds from the consumer accounts to yours after a set interval.
The main benefit of this payment model is that you don’t need the customer’s permission every time, so there are no delays. Of course, the user will have the right to cancel, but before the start of a new payment cycle.
Fixed payment and variable payment
The payment mode further has two subcategories — fixed payment and variable payment.
Fixed recurring payment: The fixed recurring system is similar to the method followed for magazine charges, gym subscriptions, and automatic bill paying systems. You have a set amount for a particular service, and the customer will pay that for every cycle. It may be a monthly, yearly, weekly, or quarterly cycle.
Variable recurring payment: The term itself suggests that this model will deal with payment cycles that include changes in the principal amount. This system works best for usage-based services such as internet charges, utility bills, and more.
Benefits of recurring payment
The benefit of this payment model is that it saves consumers and businesses a lot of time. However, this is not the only reason that makes it a preferred option. The following reasons also contribute.
Predictable Cash Flow
In this system, you and the consumer are aware of the deduction before it actually happens. The date of the payments is also constant and predefined. Therefore, both parties understand the gains and losses.
No Delay Or Missing Issues
The system is automated, so there is no latency in sending bills to the consumer. Similarly, since the payments are automatically withdrawn, there won’t be any delays in the payment.
The regular payment system involves invoices, checks, and a lot of other things, but recurring payment is free from it. The payment is direct and straightforward. So, you don’t have to hire a team to deliver bills and check the payment status manually. On the consumer side, this model helps them avoid late fees.
Implementation of recurring payment model
The deployment of recurring payment in your business is not a very complicated task. You can employ the system by following the steps given below:
- Select the platform that can help you to create a recurring payment option.
- Create guidelines for the customer. You have to guide them through all the terms and the procedures of the payment.
- Set the elements such as payment start date, billing frequency, end dates, amount, and more.
- Take measure and develop a system to store sensitive payment information. There are Payment Card Industry Data Security Standards that you have to follow.
What is subscription payment?
The subscription payment system is an advanced payment model developed to enhance customer retention rates. The model involves providing a small preview of your services and encourages consumers to buy your services.
The basic concept of the method is similar to the recurring payment. But in this case, the consumer achieves more flexibility. They can choose from multiple programs and can switch between them.
Moreover, in most subscriptions, the periodic payment will be manual. It means the consumer will have a total control over the payment and will not have to share confidential details with the business they are dealing with.
Benefit of a subscription system
The subscription is a preferred payment model for software as a service products. The following things make the subscription accessible.
Most of the payment models involve card details. They prefer it because these details are safer to use. However, a subscription is free from these limitations. It supports both manual and automated payments, so the consumers are free to use multiple payment methods.
Regulated cash flow
The subscription system supports cycle based payment, but it also supports prepayment. It means the consumer can pay and buy the services for a set amount of time in advance. So, your payment details will be transparent.
One of the significant benefits of the subscription system is that it attracts more customers. It provides them better control and more options, which makes it a very favorable choice. The model is also more trustworthy as they don’t have to share their details.
Implementation of subscription payment model
The deployment of the subscription payment model is a multi-layer process that works on both backend and frontend. You have to create a network that can receive, save, and sort the consumer details and payment status in real-time. Following are the things that you have to undergo for adding a subscription:
- Ask the consumer for signup and receive their information.
- Collect and safely store their payment details for future references.
- Add the consumer to the subscriber list along with the dates, time, and other similar information.
- Once the customer has connected, create the subscription status chart.
The recurring and subscription are very similar to each other in almost every aspect. They are modern, widely accepted, and help to retain consumers. They even share common benefits like payment security, more extensive exposure, and more.
The only difference that you will find in them is the timing and payment options. The recurring payment entirely depends on credit or debit card, while subscription may be developed for other payments. Moreover, in the recurring model, you have to store payment details, but subscription system if flexible with it.
So, the final answer to the question, “Which one is the best?” It depends on the type of services you offer, the flexibility you need, and the audience you are targeting. Analyze these aspects, combine them with the above data, and you will have your answer.