How to Accept Recurring Payments as a Small Business

Recurring payments allow businesses to collect payments while also offering the customer a good experience.
Dec 15, 2021

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Recurring payments are charges a merchant makes to a customer’s credit card or account according to an agreed schedule. Often set up as weekly, monthly or annual charges, recurring payments are an efficient way for businesses to collect regularly scheduled payments. Recurring payment processing not only saves time but supports customer retention and creates a better shopping experience.

But payment service providers have different approaches and fee structures when it comes to executing these types of payments. Let’s take a closer look at what recurring payments are, how they work and what you need to know about them as a small business.

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What are recurring payments?

A recurring payment is one that a customer pays at regular intervals for good or services. Recurring payments usually occur weekly or monthly, but they can be set up to occur on whatever schedule works best for your business.

Nerdy tip: Recurring payments are sometimes referred to as automatic payments. The process of charging recurring payments is called recurring billing. When researching costs with various payment processors, be sure to look for all of these terms to avoid missing associated fees.

These payments are unique in that customers do not need to be physically or virtually present for the payment to be processed. Instead, customers agree to share their payment information (typically a debit or credit card) with a business’s payment processor and for their card to be charged based on a payment schedule.

There are two types of recurring payments: fixed payments and variable payments. With a fixed recurring payment, a customer is charged the same amount every time, as is the case with a magazine subscription or gym membership. A variable recurring payment means the amount owed is subject to change from payment to payment, such as with usage-based charges like monthly utilities.

Benefits of recurring payments

Recurring payments save time for merchants and customers, and they simplify the customer’s experience and help them avoid missed payments. Automating payments also benefits a business by improving customer retention, which makes it easier to predict cash flow.

How do recurring payments work?

To process recurring payments, a business needs a merchant account or payment service provider, both of which allow you to accept payments electronically.

Automatic payments

Recurring payments generally are charged automatically online. A customer agrees to provide payment information to a business and to make a payment according to the schedule. While customers can pay via bank debit (ACH) or a payment platform like PayPal, credit cards are a common form of payment — known as a card on file.

Automatic payments occur when the scheduled charge is processed, and a card is charged without any action on the part of the customer. The backend process is the same as if the customer had entered the credit card information every time.

The business usually sends a receipt to the customer to show that the payment has been processed. This can be automated with certain payment processing services.

Nerdy tip: Because the customer is not present when the card is charged, businesses that use recurring payments should have customers sign an authorization to allow the charges on a regular schedule.

Recurring invoices

Some businesses prefer to set up recurring invoices rather than charge the customer's card automatically. This involves the business sending an invoice according to a schedule, and the customer paying the invoice manually.

While this doesn’t save the customer time, it can benefit your business if you automate your invoices through your point of sale system or payment processor. The downside to this method is that you do not have the customer’s authorization to charge their card if they do not pay the invoice on time.

What kinds of business use recurring payments

There are many use cases for recurring payments. Some of the most common are:

  • Subscription services: This often includes magazines or streaming services, subscription box services like Blue Apron and technology like Microsoft 360 and smartphone apps. Most subscription services feature fixed recurring payments at monthly intervals.

  • Membership services: Many membership-based businesses use recurring payments to operate more efficiently, including gyms, co-working spaces, social clubs and professional organizations. They typically charge fixed recurring payments at monthly or yearly intervals.

  • Government and municipal services: Offering recurring payments can ensure things like taxes and utility bills are collected in a timely manner. The amounts of these payments may vary from statement to statement.

  • 1:1 services: One-on-one services are those in which the provider has a set rate, and charges are based on time. Examples include legal services, child care and personal training.

  • Services that offer payment plans: Businesses that offer high-priced services, such as wedding planners, generally allow customers to break up costs into regularly scheduled payments to soften the financial impact. Payments are divided into more manageable amounts that add up to the total cost of a service.

Cost of recurring payments

Recurring payments are often charged without the customer present. This opens up a higher potential for fraud because the customer is not physically able to give permission each time a credit card is charged, and credit card data can be stolen from merchants. This is why many payment processors charge higher transaction rates for recurring payment methods like cards saved on file.

If you’re looking for a payment processor for recurring payments, be sure to look at the transaction rates for all payment methods, including card-not-present and invoice payment. These tend to be higher than the base rate of in-person transactions and can quickly add up.

To see how various rates will impact your overhead, calculate your estimated monthly credit card processing costs.

Nerdy tip: Because subscription-based businesses are more prone to chargebacks and potential fraud, such businesses are occasionally viewed as being at a higher risk. Ensure any payment processor or service you choose supports your subscription business and provides the services you need to be successful.

Recurring payment service options



Shop Now

on Stripe's website

Stripe allows businesses to store credit cards and ACH information on file for recurring payments.


2.9% plus 30 cents

ACH direct debit

0.8% with $5 cap

Recurring invoice

3.4% plus 30 cents

Stripe has several features that make recurring payments easier for small businesses. They work to help you recover potentially failed payments by retrying initially unsuccessful payments and sending email reminders to customers whose payment methods have expired. If you want the system to automatically update information when a customer’s card expires or is replaced, you can pay 25 cents per update and avoid service interruption altogether.

Customers can also update their subscription details and billing information via a customer-facing portal, as well as pause and resume subscriptions. Stripe also allows you to set up subscription self-enrollment for customers via your website when you use Stripe Checkout. The best part is all of these features are available with the free Starter plan.

» MORE: Read our full Stripe review


Square Payments

Shop Now

on Square's website

With Square, you can save a customer’s credit card or ACH debit information on file to process payment automatically.

Subscription checkout link

2.9% plus 30 cents


3.5% plus 15 cents

Recurring invoice

3.5% plus 15 cents

You can send out recurring invoices that let customers initiate a payment or automatically charge customers on set dates. To simplify the process for customers, Square lets you create checkout links that allow customers to choose to pay one time or subscribe for recurring payments. You can add the link to websites, social media posts and newsletters.

Nerdy tip: Businesses can save customer ACH information to debit a checking account for recurring payments, but Square is still working on letting customers set up this recurring payment method on their own via an e-commerce store.

Recurring payments and invoices are available for all Square users without the additional cost of a monthly fee. You’ll only pay the transaction rate when you charge a recurring payment.

And setting up recurring payments with Square is simple and can be done via the desktop dashboard and the mobile app.

» MORE: Read our full Square review


PayPal allows customers to pay recurring payments via credit card, invoice and QR code, and each method of payment has its own processing rate.


2.99% plus 49 cents

Recurring invoice

3.49% plus 49 cents

QR code for charge $10 or less

2.4% plus 5 cents

QR code for charge over $10

1.9% plus 10 cents

PayPal offers attempts to retry failed payments for customers who are paying for subscriptions but has limits on when they do so. You can also add a subscription payment button to your website to let customers opt into automatic payments; however, you’ll need to be able to paste HTML code to add the button, so a little confidence with technology is a plus.

You don’t need a special plan to accept recurring payments through PayPal, so there’s no extra monthly fee to worry about. This means you pay fees only when you process a transaction.

Setting up recurring payments in PayPal is straightforward, and it has a detailed guide to walk you through the steps.

» MORE: Check out some of the best small-business apps

A version of this article was first published on Fundera, a subsidiary of NerdWallet.