What Is A Recurring Transaction?
Simply defined, a recurring transaction is a type of charge or payment that is borne by a cardholder regularly at specified intervals for an ongoing service or product. Look at it as an ongoing payment for membership or subscription-based products and services.
How Does Recurring Billing Work?
The recurring transaction works in a simple way. Typically, a customer, who is also a cardholder buys a product or service that is billed at specific intervals, mostly monthly. The merchant or seller will then charge the cardholder an agreed-upon sum during this period until the end-user cancels the service.
Example Of Recurring Transaction
Let’s look into a business and a pet owner to put recurring payments into better perspective. The customer may set up an ongoing order with an online merchant to buy pet food supplies every month. Instead of shopping every other month, the customer authorizes a recurring bill, so that the order is placed and delivered automatically when the time reaches.
Another example of a recurring monthly payment is an electricity bill. You can set up your card to be automatically billed by the service provider at the end of the month, usually at a small discount as opposed to non-recurrent billing.
Types Of Recurring Payments
There are two prevalent types of recurring billing, including:
- Fixed recurring payment: This mode is common in businesses that offer goods or services for a fixed price. The consumer authorizes the merchant to bill them a fixed amount at every billing cycle, which can be monthly or annually.
- Variable recurring payment: this is also known as irregular recurrent billing because the amount billed from the cardholder varies at every payment cycle. This model is common in usage-based products and services.
Advantages And Disadvantages Of Recurring Billing
Like any other billing model, recurring payment processing has its advantages and drawbacks too. On the brighter side, it helps businesses retain customers for the long term, given that the consumer’s journey will only come to an end after a canceled recurring transaction. At the same time, this billing mode ensures that customers pay promptly, giving businesses a reliable cash flow.
On the other hand, recurrent billing can be disadvantageous when errors are involved, since they are hard to correct. It also has a negative effect on consumers because they can overlook unnecessary expenses or even get scammed in the process without knowing.
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