Can Your Business Benefit from Recurring Payments?
Posted by Guest Author on September 11, 2013 in Business Financing, Business Management [ 1 Comment ]
Businesses that have ongoing relationships with customers could benefit from automating their payments, saving time and money. Paying vendors via recurring payments is helpful to many businesses. In many cases, automated payments from the ACH network have lower processing rates.
For accounts receivable, businesses that have these types of customers can almost certainly benefit from ACH payments:
- Customers who regularly purchase, but the amounts billed vary from invoice to invoice.
- Customers who have purchased an on-going service and has a set fee that needs to be regularly collected.
- Customers who have purchased goods or services of a fixed amount that is split into a specific number of payments.
In the first case, we might think of a business such as an IT network and computer company. They provide infrastructure and computer systems for companies who do not have in-house staff to maintain the systems. In this case, the amount billed to a particular client is likely to vary from month to month. The invoice amount depends on the services performed, bandwidth used, new services, etc. These businesses typically send an invoice and expect a timely payment to be remitted. Mailing invoices takes time, and postal expenses add up – and then there is the wait for payment. A better alternative would be to use electronic payments. It is clear that the IT company’s clients trust them. Most of these customers would be comfortable with remitting payments electronically. Instead of mailing an invoice, the IT company could implement an e-invoicing system. This would allow their customers the ability to pay from a credit card or electronic check. This reduces the IT company’s payment processing costs to a fraction of what credit card processing amounts to.
What about those with steady customers on a subscription? The customers have purchased an on-going service. The company charges a specific, recurring amount each period. For example, we might think of a security company that monitors alarm systems for companies and home owners. Studies show that splitting an annual payment into monthly payments results in a better retention rate. People are less likely to cancel a service if they are billed monthly as opposed to an up-front annual payment. Businesses like these can really benefit from ACH payments to reduce processing costs. Their ACH transaction is not typically subject to a percentage (discount fee) from the dollar amount. Consumers and businesses may be more likely to buy an expensive item if the payments are spread out over time. For example, a furniture store could sell more goods if they offered a repayment plan. They set up a specific number of payments, such as 12, and charge a credit card or bank account each month. Automating this process with ACH payments makes it easy to bill and collect money in a timely fashion. Many payment processors offer utilities that can automate this process. What would have been a large single transaction can be easily split into smaller, multiple payments. This is one of the reasons why more companies are using ACH processing.
It’s not just the receivable side where businesses can take advantage of recurring payment capabilities. Automating vendor payments and employee payroll can make a business run more smoothly. Using ACH processing, companies can deliver funds directly to vendors and employees, and for less cost than a postage stamp.
Automating receivables and payables becomes even more attractive should the business integrate their software for payment processing. Software can automatically distribute recurring invoices electronically. Receivables can be collected automatically or by customer approval on a website. This is an area that application developers should pay close attention to. When an application developer integrates their software with payment API’s, they provide their customers with more opportunities to improve their cash flow and disbursement of funds. For software application development companies, merchant account applications can be automated as well using merchant application API’s. Providing value is always a goal for application development. Integrating automated payments with as many payment vehicles as possible is something that many businesses would value.
Are you using recurring payments on either side of your business, i.e. to pay vendors or to charge clients? Why?
Author Bio: Gene is a 13 year veteran of the electronic payments industry and serves as the VP of Business Development at ACH Payments. He specializes in payments integration of application developments. Connect with ACH Payments on Twitter!
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