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Why SMEs should take subscription payments

GoCardless
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Last editedJun 20222 min read

Over recent years, there has been massive growth in the subscription business model. There are many reasons for this. Most of them hinge on the fact that a well-implemented subscription-payments model offers many advantages to both you and your customers. With this in mind, here is a quick guide to why and how to take subscription payments.

Subscription payments vs recurring payments

The terms subscription payments and recurring payments are often used interchangeably. All subscription payments are recurring payments. Recurring payments, however, are not necessarily subscription payments; they could be instalment payments.

Benefits of subscription payments

Subscription payments offer numerous benefits for you and your customer alike. Here is a quick guide to the main ones.

Predictability

The headline benefit of a subscription is that it gives you predictable revenue and gives a customer a predictable cost. Of course, you need to make sure to set your subscription rate appropriately. In some cases, it may be appropriate to have tiered subscription levels. You could also offer ad-hoc pricing to complement the subscription.

From a customer perspective, a subscription makes sure that they get continuity of service or a continuous supply of the product they need. In other words, the customer doesn’t have to actively remember to place an order for it.

Low-friction payments

Another huge benefit of a subscription payment is that it is low friction for both you and the customer. Many subscription payments are just set up and left to run for as long as the customer needs the service. If they’re collected by Direct Debit, you can expect to get paid in full and on time during each billing cycle.

From a customer perspective, setting up a subscription removes the hassle of paying monthly invoices. They can simply get the overall subscription approved and set up a Direct Debit to pay it automatically.

Flexibility and scalability

Subscription payments fit very well with modern business models and consumer lifestyles. Both businesses and consumers typically dislike large ad hoc payments. They prefer small regular payments that link with their revenue cycles. In the case of businesses, that’s often monthly billing. In the case of consumers, that’s usually monthly pay.

Likewise, a subscription can provide a lot more scalability than a single payment. For example, you may take on extra staff at peak periods. With subscription pricing, you can simply increase your subscriptions during this period. With single pricing, you would have to commit to a one-off expense that might not be justifiable.

Similarly, in the consumer world, a consumer may need a service or product at some times more than others. With the subscription model, they can keep a baseline service or product delivery all year round, but adjust it from time to time depending on their needs and wants.

Opportunities to build customer relationships

The subscription-payments model sets the foundation for an ongoing relationship with the customer. This should be leveraged as much as possible. You can get invaluable insight into your customer’s behaviour and use this to improve your offerings.

Practicalities of subscription payments

Recurring payments really need to be managed through an automated billing system. Automation is a large part of what makes it so convenient for you. Similarly, it makes sense to charge it by Direct Debit to leverage its convenience and cost-effectiveness.

GoCardless offers three ways to manage subscriptions. The first two use the GoCardless dashboard itself. If you offer standardised payment options, you can set up plans from the Plans tab in your GoCardless dashboard.

Each plan is given its own sign-up link. When your customer signs up for the plan, GoCardless creates a customer record for them. It also creates an individual subscription according to the criteria specified in your plan. Alternatively, your customer provides their bank details, and you then set up an individual subscription for them through your GoCardless dashboard.

The final option is to manage subscription payments with accounting software, integrated with GoCardless. With this option, you just create a repeating invoice. Your accounting software creates the associated payments in GoCardless. The customer is then charged and reconciled automatically.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.

Over 70,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

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