What Is a Recurring Payment?

Recurring payments allow businesses to collect payments while also offering the customer a good experience.
Whitney Vandiver
By Whitney Vandiver 
Updated
Edited by Sally Lauckner

Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.

What is a recurring payment?

Recurring payments are automatic payments that occur when a customer agrees to make repeated payments to a merchant, often through credit card, on a set schedule. Recurring payments can help businesses create predictable revenue streams, save time, retain customers and offer better shopping experiences.

Recurring payments usually occur weekly or monthly, but they can be set up to occur on whatever schedule works best for your business. However, payment service providers have different approaches and fee structures for accepting recurring payments. 

🤓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.

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.

To process recurring payments, a business needs a merchant account or payment service provider, both of which allow you to accept payments electronically. Because the customer is not present when the card is charged, it's a good idea to have customers sign an authorization to allow the charges on a regular schedule.

Automatic payments

Recurring payments generally occur automatically online following these general steps. 

  1. 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.

  2. 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.

  3. 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

Some businesses prefer to set up recurring invoices rather than charge the customer's card automatically. In this case, the business sends an invoice according to a schedule, and then the customer pays the invoice manually.

Although 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 the merchant does not have the customer’s authorization to charge their card if they do not pay the invoice on time.

Advertisement
NerdWallet rating 

5.0

/5
NerdWallet rating 

5.0

/5
NerdWallet rating 

5.0

/5

Payment processing fees 

0.40% + 8¢

plus interchange, in-person; 0.50% + 25¢ plus interchange, online.

Payment processing fees 

2.6% + 10¢

in-person; 2.9% + 30¢ online.

Payment processing fees 

2.7% + 5¢

in-person; 2.9% + 30¢ online.

Monthly fee 

$0

Monthly fee 

$0

Starts at $0/month for unlimited devices and locations.

Monthly fee 

$0

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?

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 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

Stripe
NerdWallet rating 
Shop Now

on Stripe's website

Payment processing fees:

  • 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.

Stripe invoicing plans:

  • 0.4% per paid invoice for Stripe Invoicing Starter plan.

  • 0.5% per paid invoice for Stripe Invoicing Plus plan.

Why we like it: Stripe allows businesses to store credit cards and ACH information on file for recurring payments. It also helps merchants retry initially unsuccessful payments and sends 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 through a customer-facing portal, as well as pause and resume subscriptions. Stripe also allows you to set up subscription self-enrollment for customers through your website when you use Stripe Checkout.

Square

Square Payments

Square
Shop Now

on Square's website

Payment processing fees:

  • 2.6% plus 10 cents for in-person transactions.

  • 2.9% plus 30 cents for online transactions.

  • 3.5% plus 15 cents for manually keyed transactions.

  • 3.3% plus 30 cents for invoices.

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

You can send out recurring invoices that let customers initiate a payment or automatically charge customers on set dates. 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.

Setting up recurring payments with Square is simple and can be done through the desktop dashboard and the mobile app.

PayPal

Payment processing fees:

  • 2.29% plus 9 cents for in-person and QR code transactions.

  • 3.49% plus 9 cents for manual-entry card transactions.

  • 2.89% plus 49 cents for online card payments.

  • 2.99% plus 49 cents for invoicing (payment made with card).

  • 3.49% plus 49 cents for invoicing (payment made with PayPal).

Why we like it: PayPal allows customers to make recurring payments through credit card, invoice and QR code, and each method of payment has its own processing rate.

PayPal offers attempts to retry failed payments for customers who are paying for subscriptions, but it has limits on when it does 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.

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

On a similar note...

logo image
Accept payments, avoid surprises
Answer a few questions to match your business with our selected payment partners.
Best Payment Processing Companies
ProductPayment processing feesMonthly feeLearn more
Helcim

Helcim

NerdWallet Rating 
5.0
Learn more

on Helcim's website

0.40% + 8¢ 

plus interchange, in-person; 0.50% + 25¢ plus interchange, online.

$0 
Learn more

on Helcim's website

Square

Square

NerdWallet Rating 
5.0
Learn more

on Square's website

2.6% + 10¢ 

in-person; 2.9% + 30¢ online.

$0 

Starts at $0/month for unlimited devices and locations.

Learn more

on Square's website

Stripe

Stripe Payments

NerdWallet Rating 
5.0
Learn more

on Stripe's website

2.7% + 5¢ 

in-person; 2.9% + 30¢ online.

$0 
Learn more

on Stripe's website

Stax by Fattmerchant

Stax by Fattmerchant

NerdWallet Rating 
4.0
Learn more

on Stax by Fattmerchant's website

0% + $0.08 

Plus interchange

$99 

and up.

Learn more

on Stax by Fattmerchant's website