How to Process Recurring Payments in 13 Steps

How to Process Recurring Payments in 13 Steps


Businesses that provide services on an ongoing basis typically process payments at regular intervals for the duration of their relationship with a customer, rather than accepting a single payment at the beginning. Such transactions are very different from regular one-time payments for a range of reasons and need to be managed differently.


A typical recurring payment plan would be set up for, say, a newspaper subscription where the customer is charged on a monthly basis until the subscription is canceled. The first payment of the plan would be processed much like any regular one-time transaction. Each successive payment, however, would have to account for the probability that some circumstances may have changed that could lead to a rejection of the transaction. In this article I will show you how to minimize the chance of this happening.

13 Steps to Processing Recurring Payments


Your recurring payments should be processed in accordance with the following guidelines:

  1. Ask your customer to select a billing date. This would be especially important for plans set up with check cards. Your customer knows best when the funds are most likely to be available, so let her choose the payment date.
  2. Tell your customer how the payment will appear on her statement. The cardholder must be able to immediately recognize the charge. The way your name appears on card statements is managed through the billing descriptor and you should check with your merchant processing provider and ensure it is properly set up.
  3. Ask for the billing address before the first payment. Remember that the Address Verification Service (AVS) can only validate billing addresses.
  4. State your cancellation policy on the services agreement. Ask that your customer agrees to it before initiating the service.
  5. Fully disclose your billing arrangement. Inform your customer of all fees related to the service, including shipping charges and taxes, if applicable.
  6. Obtain an agreement with the terms and conditions of the plan. For e-commerce payments, ask your customer to click on an “Accept” or “Agree” button, acknowledging her acceptance of the terms.
  7. Use AVS and the card security codes on the first payment. Submit these two inquiries with the authorization request and evaluate the response.
  8. Immediately discontinue billing upon cancellation. If your customer cancels the service agreement according to the terms of the sale, immediately honor the request and stop billing her account.
  9. Process refunds and credits quickly. If you have to issue a refund, do it quickly or you risk that your customer could file a dispute with her credit card company.
  10. Notify your customer of any delivery delay. If a delivery is running late, inform your customer of the change.
  11. Provide a customer service phone number. Place it prominently on the service agreement and on your website. A quick phone call may resolve an issue that could otherwise deteriorate into a dispute.
  12. Authorize all payments. That includes the initial one and all successive transactions for the duration of the plan.
  13. Send a pre-billing notification. Notify your customer at least seven days in advance of each recurring billing of the terms of the agreement and provide information about the billing date and amount and the account which will be debited.


Additionally, you should sign up for Visa’s and MasterCard’s card account updater services, which will automatically verify the accuracy of the account information you have on file for your customers. Over time accounts may be closed or account numbers changed and in any case cards are regularly replaced to avoid expiration. These services will keep your information up-to-date and prevent disruptions in your recurring payments.


Image credit: Siol.net.

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