In the business world, EFT generally stands for Electronic Funds Transfer. Colloquially, it can also stand for “earnings for tomorrow”. EFTs are generally electronic payments such as wire transfers, direct-debit transactions, and so forth which are paid on a schedule. EFTs are a form of recurring payment. Recurring payments are the lifeblood of many businesses, as it allows for merchants to understand what they can reasonably expect to earn today, tomorrow, and well into the future.
So what are the benefits of recurring payments over receiving payments piecemeal? Are there any downsides to setting up recurring payments? Today, we will answer these questions and more.
What are Recurring Payments?
According to investopedia, recurring payments, or recurring billing, “happens when a merchant automatically charges a cardholder for specified goods or services on a prearranged schedule.” This allows both parties to plan ahead for future expenses/revenue. It also lessens the burden in regards to accounting for a business’s financials overall.
Typical examples of recurring payments in everyday life might include subscription services, cable bills, fitness center membership fees, and so forth. Many business owners might not think that their business qualifies for recurring payments, but with a certain amount of creativity, a large number of business models can use recurring billing.
Of course recurring billing does not fit all business models. A boutique clothing store can hardly expect to bill their customers once a month for the same amount. Whether or not your small business is an appropriate fit for recurring payments is an issue of customer convenience as well as good business sense.
The Advantages of Recurring Revenue for Merchants
We have already reviewed one of the greatest benefits of recurring revenue: predictability. Yet this hardly tells the whole story. There are a number of benefits to recurring payment structures that can help businesses of all sizes.
Recurring payments encourage customer engagement. Not all business models are like gym memberships where you get paid whether or not the customer uses your product. Consider instead a personal trainer. He or she will do better to bill clients on a regular schedule then set appointments rather than waiting on clients to set appointments and bill afterwards.
Cash stability is a fringe benefit of recurring billing models. Electronic payments are fast, simple, and you get your money pretty darn close to immediately in many cases. Recurring payments are not only fast, but they are regular and they are generally in advance. This allows your small business to stay flush with cash.
Recurring revenue is less risky than other revenue models. Stability and reliability put together = fewer risks for your business. Steady income means fewer fluctuations in revenue, fewer unexpected losses, and greater relationships with your clientele.
The Benefits of Recurring Billing for Customers
Speaking of clientele, your customers will likely reap the benefits from EFT payments as well. Here are a few ways in which switching to a recurring billing schedule will keep your clients happy:
Predictability from the customer’s side as well. Do not underestimate the value of providing a good or service with a reliable price tag. Other businesses and/or individuals will love the consistency just as much as you do.
Recurring payments are often far more convenient for your customers. For most of us, it would be unthinkable to pay in cash or write a check to the gym every month. Not only because we still haven’t lost those 15 pounds, but also because that sounds like a logistical nightmare.
Recurring billing all but eliminates late fees and other administrative charges. When you and your customer agree to a long term financial arrangement, recurring payments streamline this process and cut down unexpected expenses.
It is the more environmentally-friendly option. For an increasingly environmentally-conscious marketplace, offering EFT payments which require minimal ink (real or digital) is a no-brainer.
Small Businesses Incur Some Risks with Automatic Payments
Needless to say, there are still some risks which are inherent to making or accepting automatic payments. For the most part, these risks are held on the consumer’s end. These risks include factors like accidental overdrafts, forgetting that you changed accounts, expired credit cards, and so forth.
These risks are shared by merchants as well, but in a different manner. The fact remains that the benefits of recurring billing far outweigh any potential risks. Recurring payments build a trusting relationship with clients, a regular revenue stream, and are the backbone of many successful business models!
True Merchant Payment Processing for Businesses of all Sizes
True Merchant is proud to offer our True Merchant Gateway Service for all payment types. We understand that recurring payments are the lifeblood of many of our merchants, and we work hard to support that business model by accepting recurring payments via credit card, debit card, ACH, or direct wire transfer. Our merchant service professionals will help your small business set up recurring billing for no additional fee as part of your Cardpointe Merchant Account.
For more information, please contact us online or feel free to call at 1-888-770-2018 today. One of our qualified representatives will be happy to walk you through our services and to find out how we can best meet your needs today!