What Is a Recurring Payment?

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What is a recurring payment?

- 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.
Automatic payments
- The customer signs up for recurring payments. A customer agrees to provide payment information to a business and to make payments according to a schedule. Although customers can pay through bank debit (ACH) or a payment platform such as PayPal, credit cards are a common form of payment — known as a card on file.
- The merchant initiates regular charges. Automatic payments occur when the scheduled charge is processed, and a card is charged without any action on the part of the customer. The process is as if the customer had entered the credit card information every time.
- The merchant creates a record of the transaction. 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.
Recurring invoices
Benefits of recurring payments
- Efficiency. Recurring payments save time for merchants and customers.
- Simplicity. Recurring payments can streamline the customer’s transaction experience.
- Predictability. Recurring payments can help merchants and customers avoid missed payments.
- Loyalty. Automating payments can improve customer retention, which makes it easier to predict cash flow.
Costs of recurring payments
- Scam potential. Recurring payments often occur 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. Credit card data can also be stolen.
- Higher fees. Because the fraud or chargeback frequency on card-not-present transactions can be higher, many payment processors charge merchants more to accept recurring payments and invoice payments. Subscription-based businesses may also be considered high-risk, which can also lead to higher fees or prevent them from working with certain payment processors. To see how various rates will impact your overhead, calculate your estimated monthly credit card processing costs.
What kinds of businesses use recurring payments?
- Subscription services. This often includes magazines or streaming services, subscription box services such as Blue Apron and technology such as Microsoft 360 or 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 that 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.
Recurring payment service options
Stripe
Stripe |
- 2.7% plus 5 cents for in-person transactions.
- 2.9% plus 30 cents for online transactions.
- 3.4% plus 30 cents for manually keyed transactions.
- 4.4% plus 30 cents for international card transactions.
- 0.4% per paid invoice for Stripe Invoicing Starter plan.
- 0.5% per paid invoice for Stripe Invoicing Plus plan.
Square
Square Payments |
2.6% plus 15 cents for in-person transactions with all free plans.
2.6% plus 10 cents for in-person transactions with paid restaurant plans.
2.5% plus 10 cents for in-person transactions with paid retail and appointments plans.
2.9% plus 30 cents for online transactions.
3.5% plus 15 cents for manually keyed transactions.
3.3% plus 30 cents for invoices.
PayPal
- 2.29% plus 9 cents for in-person and QR code transactions.
- 3.49% plus 9 cents for manual-entry card transactions.
- 2.99% plus 49 cents for invoicing (payment made with card).
- 3.49% plus 49 cents for invoicing (payment made with PayPal).