In a world ruled by financial transactions, one key decision that businesses often grapple with is the choice between recurring and non-recurring payments. Both methods have advantages and disadvantages (for the customer and the business), and it’s not always easy to anticipate which is the most profitable for your business model in the long run.
How Do Recurring Payments Work?
Recurring payments are regular payments made at agreed-upon intervals of time. Whether weekly, fortnightly, or monthly, the customer authorises a business to deduct money from their bank account or card. On billing day, the business initiates the payment, otherwise known as a pull-payment. Some common examples of recurring payments include the following:
- Gym or sports memberships and fees
- Personal training fees
- Subscription services like Netflix and Disney+
- Real estate fees like rental payments and mortgage repayments
- Electricity, internet, phone, and other utility bills
- News subscriptions
- School and education fees
Many people make recurring payments to pay fees that occur on an ongoing basis — it’s easier and more convenient that way, and it saves people from forgetting to make a payment. Especially if the recurring payment is fixed and the same each time, it benefits both the customer and the business to automate it by automatically deducting the money each week, fortnight, or whatever period is agreed upon.
The convenience and assurance that comes with recurring payments have made it a popular revenue model for businesses. It provides a better, more consistent cash flow, reduces problems with late or non-payments, and increases customer retention by setting them up with a payment plan that requires little-to-no effort on their part and divides costly expenditures into manageable sums.
How Do Non-Recurring Payments Work?
Non-recurring payments are one-off transactions that can be made through a variety of methods. These payments only happen once, and so there’s only one invoice and one bill and usually involve the transfer of a larger amount of money than recurring payments.
Here are just a few examples of non-recurring payments:
- Goods, merchandise, and products
- One-off bills, fees, and fines
- Services not covered by subscriptions or memberships
- Set-up fees
- Gift cards or vouchers
- Short-course fees
Many business models that offer membership or subscription fees as recurring payments also offer options to combine the total costs of recurring payments into one non-recurring payment. For example, a monthly subscription to Disney+ will cost $13.99 AUD per month — however, customers have the option to pay an annual fee of $139.99. This offers a 16.61% discount from what they would pay over the year through recurring monthly payments. Many retailers also offer the choice to pay non-recurring or split the sum into four recurring payments.
From a business perspective, non-recurring payments offer more immediate and rapid initial growth, since the full payment takes place earlier. This allows businesses more capital to invest in growth and recovery from marketing and sales costs. For smaller transactions, such as short-course fees, it makes more sense for customers to pay in full, so it’s important that businesses have the ability to process non-recurring payments.
Which is Better: Recurring or Non-Recurring?
Neither is outright better than the other — both have their advantages and disadvantages. They both offer businesses good ways to receive and manage payments. Recurring payments may be harder to set up, but once they are, they generate more customer lifetime value and increase cash flow. Non-recurring payments may be less frequent, but they offer immediate growth, simplify the billing process, and provide greater flexibility.
To offer customers the best experience, a combination of both is important. Having the ability to offer both recurring and non-recurring payments will give your business the tools to handle payments your way, whilst also delighting your customers.
Set up Secure and Convenient Recurring and Non-Recurring Payments with Ezpay
If you’re looking for a platform that allows you to manage your payment and billing systems, then look no further than Ezypay. We can enable you to seamlessly receive, amend, and manage recurring and non-recurring payments for your business. Partner with us to make payment management easier and more convenient than ever.