Last editedApr 20222 min read
Many businesses now operate under a subscription model, and it’s increasingly common for people to make regular payments for goods or services rather than a one-off fee. There are a number of benefits for both businesses and consumers, offering convenience and a regular stream of income for the company. For subscriptions and other purposes, automatic payments are an efficient way to collect fees.
But what is automatic payment, exactly? Put simply, it’s an agreement between a customer and company that allows the company to automatically collect payment in exchange for goods or services. This is slightly different to Direct Debit and standing orders, as only card details are required. Keep reading to find out the answers to questions like: “What is automatic recurring payment?” and “How do automatic payments work?”
How do automatic payments work?
In order to begin automatic payments, the customer must provide their card details and authorisation to the company, which is usually done online. An amount must be agreed on, as well as the frequency of payments and the term of payment. Once this one-time set-up is complete, payments are automatically taken from the customer’s account on the agreed date.
Automatic payments are typically used for services such as insurance and subscriptions to streaming platforms, as well as various other subscription services.
In order to accept automatic payments from your customers, you will need a separate merchant account. Along with this, most businesses choose to work with a payment processor such as GoCardless, Stripe or PayPal in order to collect these payments.
What time do automatic payments go through?
You might be wondering what restrictions automatic recurring payments are subject to, and whether they work in the same way as other payment methods such as standing orders. In fact, you can choose the time of day that you wish for payments to be taken, with most people opting for some time in the early morning.
The automatic payment system runs 365 days a year, so you don’t need to worry about weekends and bank holidays delaying payments. However, the system is very flexible, and you can even configure it to exclude weekends or certain days if you want.
Do automatic payments affect credit score?
Many customers who are new to automatic payments are concerned about the financial impact this may have, with questions such as: “do automatic payments affect credit score?”
The short answer is yes, automatic payments do have an impact on credit rating. If you ensure that you have enough money in your account on the payment date, then this will be a positive effect, demonstrating your ability to commit to regular payments. However, if there is not enough money in your account on payment date, then this will negatively impact your credit score. For this reason, it’s a good idea to consider setting up an overdraft on your account as a buffer.
Using GoCardless for recurring payments
GoCardless makes it easy to set up recurring payments. After a simple set-up, money will automatically leave the customer’s account on the pre-agreed date, saving everyone time and ensuring a regular stream of income for your business. There are added benefits for the merchant, such as the ability to pull payments directly from the payer, and a view of the payment status on the GoCardless dashboard.
The numbers speak for themselves – 97.1% of GoCardless payments are successfully collected on the target date. What’s more, the Success+ payment intelligence system will automatically re-attempt to collect any failed payments, successfully recovering 76% of payments that fail on the first try. This is a great way to prevent unnecessary missed payments, considering that on average 15% of card payments will fail the first time.
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.