There are two main methods for taking recurring payments online:
We've put together a summary of each online payment option below, to help you decide which is the best way to collect online payments for your business.
1) Direct Debit
In short, a Direct Debit is an instruction from your customer to their bank which authorizes your business to directly withdraw funds from their account when payment is due.
While this can sound like a payment method that favours your business over your customer, there are actually a number of advantages for both parties (see benefits for payers, and benefits for businesses), and rules in place to protect consumers.
Direct Debit is best suited to businesses that don't require their online payments to be instant (such as for e-commerce). It tends to be cheaper than card payments, as well as requiring less accounting and payments admin.
How to take Direct Debit payments online
Option 1: Direct access to Direct Debit
You can directly access the ACH network (the bank-to-bank network Direct Debit payments run on in the US) through certain banks, however the entry requirements to direct access can be expensive, time-consuming, and complex to meet.
This option is typically only advantageous for large enterprise businesses.
Learn more in our guide to direct access to ACH.
Option 2: Third-party payments processor (TPPP)
For many businesses, direct access to the ACH network isn't feasible. Organizations referred to as third-party payments processors (TPPPs) help fill this gap.
TPPPs act at scale, serving many businesses as an intermediary to the bank which is part of the ACH network. Because of this, they can offer cheaper, faster, and simpler entry requirements to Direct Debit for your business.
TPPPs can also be banks, or they can be credit card payment processors, accounting software providers, and more. It's possible your business already has a relationship with one.
Learn more in our guide to indirect access to ACH.
Option 3: GoCardless
GoCardless is a Direct Debit specialist that can provide your business cheap, fast, and simple access to Direct Debit.
With GoCardless you can manage your Direct Debit payments from a simple online dashboard (or you can integrate with the GoCardless REST API).
Your customers will be able to set up Direct Debit payments to you online, without having to fill out tedious paper authorization forms.
Learn more about ACH debit payments with GoCardless.
2) Credit (or debit) card
Credit and debit cards are - for several industries in the US - considered the de facto default way to accept payments online. A look at global business payment preferences suggests that this "preference" for cards isn't a payer preference at all, but rather a historical habit that has stuck around.
However, if you need to collect payments from your customers instantly, card payments are likely your best option.
How to take card payments online
Option 1: DIY
A merchant account is a bank account that allows you to accept payments from credit or debit cards. It is an online bank account that temporarily holds your money until it is moved to your normal business account. Many banks offer these, and you don't need to get one from the same bank that you have your normal business account with.
A payment gateway connects your website to one or more of the processor networks, similarly to a credit card machine in a shop or restaurant. It lets your customer submit their credit card details and then tells you whether the charge is approved by the cardholder’s bank, as well as submits your charges for settlement.
Option 2: Outsource to a Payment Service Provider (PSP)
If you don’t want to do it all yourself, you can choose to use a payment service provider (PSP) to help you accept online payments.
PSPs act as a middleman between you and the banks – they make sure that all the money ends up in the right place by taking it from the cardholder’s account and delivering it to your account.
Full service PSPs typically provide the services of both a merchant account and a payment gateway, letting you accept online payments without you needing to acquire these facilities on your own.
Using a PSP typically reduces the burden of compliance as you will never actually touch sensitive financial information. Online providers like Stripe also offer a full stack of services such as subscription billing, fraud management, payouts, transfers, and more, making the payment process even easier.
Which PSP you choose will depend on what you need:
If you want a great API, take a look at Stripe
If you want a well-known name, take a look at PayPal
If you want a great mobile experience, take a look at Braintree
If you provide your customers a subscription service, a subscription management service (or subscription wrapper) lets you easily handle recurring payments. Services typically have a credit card vault (where customers can store their credit card details for future use); automate billing, customer sign up and billing related emails; and make sure the right people get charged the right amount every month. You’ll typically still need to use either a merchant account and payment gateway, or a PSP.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.