If you're a business owner or merchant, automatic payments are a good way to receive your sales settlements more quickly, while improving your cash flow. Though there are many things to consider when adding automatic payments to your ecommerce, the first step should be to find a payment processor that offers you an automatic payments option that suits your business model. Once implemented on your website, the availability of automatic payments needs to be made clear to your potential buyers to help guide them to sign up for this option. What are Automatic Payments? Automatic payments are the scheduled transfer of money to pay a recurring bill, on a predetermined and agreed upon date. Automatic payments are typically used for routine bank, brokerage, or vendor payments. Automatic payments are usually set up directly with the company providing the service, although automatic payments can also be scheduled through an online bill payment service, a creditor or financial institution. Automatic payments, such as the Automated Clearing House (ACH), take place via an electronic payment system.
Automatic Payment DefinitionAn automatic payment is a user-to-creditor agreement that allows the creditor to draw money to pay bills from the user’s account or credit card. Automatic payments allow companies to charge customers monthly without requiring the user’s input or payment data, time and time again.
How do Automatic Payments Work?Automatic payments allow you as a merchant to automatically charge a buyer's credit card regularly, through a recurring charge. This is perfect for subscriptions, as you are billing repeatedly with the same cost each month. Automatic billing is a recurring payment made on behalf of the consumer, by a financial institution, or payment processor. A customer must save their payments source, which is usually a credit or debit card, set up as a “Card on File" within the payment processor’s billing system. The consumer then grants permission to the payment processor for the recurring payment to take place, over the life of the agreement. Stored Payment data can then be used to process payments for recurring products or purchases of subscriptions automatically. Nearly every different form of billing can be handled by a payment processing system that supports automatic payments. Some run these payments based on invoice or payment cycles, others implement and handle payments online. These are very different payment methods, so before choosing a payment processor, it is important to identify and define your billing needs.
Examples of Automatic PaymentsAutomatic payments for individuals are varied but include:
- Tuition costs
- Rent and much more.
Examples of Automatic Payments in Business
- Subscriptions: This may include media products such as journals, magazines or streaming services. Subscription boxes such as Dollar Shave Club or Blue Apron, or SaaS products such as Shopify or WordPress. Most subscription services feature fixed monthly recurring payments.
- Memberships: There are many distinct types of membership-based companies using recurring payments to function more effectively, including gyms, coworking spaces, social clubs, and professional organizations. Like subscription services, membership payments are typically fixed monthly or annual recurring payments.
- Government and municipal services: Offering recurring payments can guarantee the timely collection of items such as taxes and utility bills. These kinds of recurring payments may differ in terms of price from month to month. Specific examples include bills for gas, water and electricity, estate tax bills and payments for student loans.
- One on one services: These include professional and business services, including but not limited to legal services, tutoring, childcare, cleaning, personal training, or any other type of one-on-one service typically happening at regular intervals. Recurring payments can be offered to make this transaction as seamless as possible.
- Financial services: Recurring payments can play a major role in personal finance, particularly in saving and retirement planning. For example, many 401(k) and IRA plans will allow you to regularly arrange recurring contributions. You can also arrange repeated loan payments to ensure that you never go into default.
- Freelance employees
- Daycare companies
- IT professionals
- Lawyers and law firms
- General contractors