What is Recurring Payment? Definition, Types, and Benefits

Many businesses seek to boost their profit margin by increasing their revenue streams. Still, the deep desire of most business owners is to have a consistent and predictable level of incoming profits. This is why subscription business models have been on the rise in the last few years, as it allows businesses to realize their goal of a steady and predictable cash flow through recurring payments. 

In this article, we’ll discuss what is recurring payments, the types, benefits, and how it works.

What is recurring payment?

Recurring payment is a type of payment method that allows businesses and merchants to withdraw payments directly from a customer’s account at specific intervals, with the customer’s authorization, for goods or services being rendered to them. Recurring payments require both customer payment information and authorization at the initial stage to take effect. Afterward, the merchant deducts the agreed price repeatedly and automatically from their account at the agreed intervals without further permission, until the subscription expires or the customer withdraws their permission.  

Generally, goods and services that customers need and pay for regularly are excellent candidates for recurring payments, such as utility bills, gym membership fees, cable bills, etc. 

Types of recurring payments

There are two main types of recurring payments: fixed payments and variable payments.

Fixed payments or regular payments

Fixed or regular recurring payment is a type of recurring payment in which the same amount of money is automatically deducted from the customer’s account at regular intervals. This means that as long as the customer continues to use the product or service of the merchant, they will be charged a fixed or constant amount in every billing cycle. Examples of this are businesses that provide their products or services at a fixed price, such as movie streaming platforms, magazine subscriptions, and gym memberships. This provides stable, consistent, and predictable revenue for the business. 

Variable or irregular payments

Variable or irregular recurring payment is a type of recurring payment in which the amount that’s automatically deducted from the customer’s account can vary from one billing cycle to the other. In most cases, the amount that a customer is charged in each billing cycle is based on the usage or quantity of the merchant’s product or service within the period being charged. 

The usage-based variable payment means a customer is charged based on how much they use the service a merchant provides. Examples of this are utility bills and electricity bill payments. On the other hand, quantity-based variable payment means a customer is charged based on the quantity of products that the customers use. An example of this is the volume-based cloud storage service.  

How do recurring payments work?

Although it involves a structured process, recurring payments work in a very simple way. Here’s a breakdown of the process:

Authorisation and consent 

The customer grants the merchant or business authorization and consent for recurring payments. This is mostly done at the signup stage or during the initial purchase. It can also be in the form of opt-in agreements to ensure transparency and compliance with legal requirements.

Payment processing

Once given access and consent, the merchant starts to process recurring payments from the customer’s account through their payment provider. These payments can be processed through various methods, such as credit/debit cards, bank transfers, and digital wallets. The chosen payment method is determined when the customer opts for recurring payments and is debited at the pre-scheduled intervals.

Cancellations and modifications

Customers retain control over their subscriptions or services and can choose to cancel or modify their recurring payments at any time. This flexibility is essential to maintain a positive customer experience for businesses. 


Benefits of recurring payments for your business

There are several ways that recurring payments are beneficial to your business, some of these are:

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Stable cash flow

Recurring payments ensure a stable and consistent cash flow from your customers. It takes away the barriers that customers might face in making payments consistently that could hinder them from continuing and ensures that revenue continues to flow for your business. Consequently, it reduces your collection costs and helps you achieve a healthy cash flow. This predictable revenue stream empowers you to plan and invest with little to no financial uncertainty since you can predict how much revenue you’re expecting per time. 

Minimal cost and effort

Recurring payments are processed automatically, minimizing the cost and effort that goes into creating invoices and processing payments manually. You only need to determine the payment plan (amount to be paid and interval) at the initial stage and the software takes over from you handling subsequent payment. The only time human intervention might be needed is when the payment plan changes or when the subscription is canceled.  

Eliminate late payments

Each late payment that customers make affects the business revenue and strains the customer relationship. Recurring payments help to prevent this, as the due amount is automatically debited from the customer’s account on the due date, ensuring that your business gets its money on time. This action is consistent and repeated so you won't have to worry about late payments from your customers, especially ones related to forgetfulness.  

Improve customer relationship

Recurring payments make payment easy and convenient for customers since they’re not required to input their payment information every time. They only do this once, and subsequent payments are processed on their behalf. This allows your customers to enjoy your service/products without taking a break or worrying about when payment is due. Consequently, this creates a feel-good factor for your customers which impacts their relationship with your business. 

What businesses can use recurring payments?

Recurring payment is growing rapidly as one of the most commonly used revenue models for companies and businesses. Its versatility makes it applicable across several industries and businesses, such as:

Utility providers

Utilities such as phone and electricity bills can be paid using recurring payments. Utility providers can leverage the variable recurring payment type to collect prompt payments and ensure their customers continue enjoying uninterrupted services. 

Financial services provider

Financial service providers, such as banks, can help their customers plan their personal finances better with recurring payments. At specific intervals, the financial service provider could deduct a specified amount from the customer’s account for mutual investments, loan repayments, credit card dues, or general insurance. 

Membership businesses

Businesses that use the membership model, such as gyms, co-working spaces, and online learning platforms, are more likely than others to need recurring payments. The customers are charged a price for membership, renewable monthly, quarterly, or yearly. These businesses can use recurring payments to ensure they get their revenue seamlessly at each interval, and customers continue being members and enjoy the perks of membership. 

Subscription Businesses

The subscription business model is a popular model where customers pay for access to a service. Streaming platforms such as Netflix and Amazon Prime are examples of subscription businesses. Recurring payments allow these businesses to get steady revenue by automatically debiting customers for continued access to their service.


Recurring payments offer an easy and convenient way for both businesses and customers to complete repeat transactions. With recurrent payments, your business is guaranteed a steady and predictable cash flow that leaves you in a healthy financial position and improves customer relationships.  

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