Subscription businesses have become increasingly popular because they are a win-win for both businesses and consumers.

Companies are rushing to move from one-time payments and start a subscription business because they generate a steady revenue stream, making financial forecasting and budgeting much easier. This predictability also benefits consumers; having a fixed number for the subscription pricing in the customer’s monthly budgets gives them peace of mind in an uncertain economy.

Because of the large customer bases subscription businesses have to handle, they process monthly payments from thousands of credit cards. To charge amounts to all those customers on an agreed-upon regular basis, they must use some form of recurring payment processing.

How do recurring payments work?

Think back to the last time you signed up for a subscription with a well-known company like Paramount, Speedo, or PupBox. It was likely a fast and easy process. You provided your payment details, and off you went. From there, you were automatically charged an agreed-upon amount on an annual basis (for the best price), and you might have never given it a second thought. That's no accident.

Not only does a payment solution that feels seamless improve a business's customer retention, but it's also the key to making predictable revenue more predictable. Yet that same subscription you signed up for offered multiple pricing plans (built from a pricing strategy) as well as a bundle of features available at predefined intervals. 

Now that you think about it, sustainable growth is a complex process. Let's show you how payment collection works.

Processing a credit card payment flowchart

As you can see, processing payments from customers takes more than just running a credit card number.

  1. The customer hits the order button to initiate a purchase from the merchant.

  2. The merchant receives the credit card information and hands it off to a third-party billing platform, like Recurly, avoiding any PCI liability that could arise from the storage of customer financial information.

  3. The payment details are stored and the online payment request is sent to the gateway.

  4. The gateway sends the request to the payment processor, which then forwards it on to payment service providers or card associations (such as Visa, Mastercard, American Express, or Discover).

  5. The association takes the request and sends it to the customer’s issuing bank.

  6. The financial institution approves (or denies) the transaction and then informs the network of its decision. It's typically approved if the customer’s card details are accurate and have sufficient funds.

  7. Assuming there were no hiccups, the customer is billed by the issuer on their monthly statement.

What’s remarkable is that this entire payment process takes place within a few seconds—so next time you’re online and waiting for a few seconds for your transaction to get approved, think about everything going on behind the scenes. And, of course, with recurring payment processing, this process repeats itself every payment cycle.

A standout recurring payment processing system like Recurly ensures this multi-step process goes smoothly each and every time.

How can recurring payments benefit your business?

Your company can enjoy several benefits when you use a recurring payment processing solution. Here are a few of them:

  • Minimized effort: The setup is a one-shot deal, and no more work needs to be done every billing cycle by either you or your customers. It sounds like a bonus for your business, but it also helps you build customer relationships. With online recurring payment processing, the invoice and payment information automatically flows into the right systems, preventing missed and late payments–making it easier to keep track of a client's payment history.

  • Error and fraud defense: There is less risk of card detail mistakes or fraud because your customers aren’t required to enter their payment details over and over again. Fraud and chargeback-related expenses make up 13% to 20% of businesses operating budgets. With automatic billing cycles, you can protect your business integrity by securing your client's payment methods and streamlining the billing process.

  • Flexible payment terms and packages: It’s easier to give your customers a variety of payment, plan, and billing frequency options, which they can change at any time. Some customers may want to make credit or debit card payments, while others want to pay using a virtual terminal like PayPal for automatic payments. Perhaps your value-packed but most expensive plan appeals to a small subset of your customers, but others see it as excessive and wish you had a pared-down offering. Without recurring payment options, this type of flexibility is difficult, if not impossible, to achieve.

The benefits of recurring payment processing are undeniable. But maybe you’re still wondering if it can help your business.

What kinds of businesses need recurring payment processing?

When you think of subscription companies, some examples that may come to mind are Netflix and Dollar Shave Club. There is an obvious recurring need for fresh entertainment and razors, so these companies don’t have much trouble convincing customers to part with their hard-earned money and make monthly payments. 

In other industries, the potential of a subscription payment model isn’t as clear-cut, but continuous revenue is entirely possible. If customers have a recurring need for a product or service, there is the potential for it to be turned into a subscription. Nicely Noted and Loot Crate show what’s possible if you get creative and set up payment cycles and tiers of pricing.

Nicely Noted is a stationery company that sends subscribers three handmade letterpress cards and three “gorgeous” USPS stamps for $20 a month. While many people don’t send physical cards as much as they once did, a large number still do. So, for the card enthusiast, Nicely Noted satisfies a recurring need. That same audience prefers bills at regular intervals.

Could you make a recurring payment business out of magazine subscriptions? Loot Crate is a geek subscription box for gamers and nerds (their words). To start, Loot Crate asks subscribers what their favorite pop culture franchises are. The company uses that information to curate a monthly box filled with collectibles, clothing, art, and more. If you know a comic book collector—or you are one yourself—you know there is a recurring desire to add to a collection, and Loot Crate satisfies it.

What are the different ways to process recurring payments?

“There’s more than one way to skin a cat” could apply to processing recurring payments. But not every payment solution is created equal.

  • Accounting software is an option if you have a limited number of plans and a small stable of customers. Accounting software isn’t sufficient for companies with complex needs unless managing tons of disparate spreadsheets is your idea of fun.

  • Payment gateways are a crucial piece of recurring payment processing. This can be a lower-cost option due to reduced payment processing fees, but relying on just one payment gateway for all your payment processing needs is risky. More on that in a bit.

  • Subscription management and billing platforms, like Recurly, can handle all billing needs. The best subscription billing software supports multiple gateways, provides subscription model metrics, and gives actionable insights to advance your business. Advanced subscription management platforms can help you recover revenue you’d otherwise lose to involuntary churn and give you the tools to analyze customer churn.

Getting back to gateways, you may be wondering, "Why is it necessary to have multiple gateways?"

Multiple gateways are vital important because there is not one electronic gateway that supports all types of transactions at a high volume. Geolocation and product type are just two of the variables that impact them.

Additionally, gateway failures happen—Recurly has documented an average of 40 performance issues per year across our supported gateways—and if your business does substantial volume, a gateway outage of a few hours could prove very costly.

Go with a subscription billing platform that integrates with a large number of gateways (Recurly, for example, integrates with more than 22) and supports gateway failover, a critical step to reducing your involuntary churn. 


A first-rate recurring payment processing solution does a lot of behind-the-scenes work to ensure that your customers’ payments go through without a hitch at every point in the billing schedule. Your customers likely have a diverse set of preferences, so you should look for a billing solution that can handle every imaginable scenario.

Frequently Asked Questions

How do I choose a recurring payment processing solution?

There are a lot of considerations when it comes to choosing a recurring payment processing solution for your business. If you need a complete subscription management platform, check out our evaluation worksheet to understand what capabilities to look for, what questions to ask your internal stakeholders and vendor, and what terms you need to know.

Which payment platform is good for recurring payments?

There are many recurring payment platforms to choose from, and the variety of information can make the selection process a little complicated.

Recurly as a subscription management platform, allows you to set up an array of recurring and one-time payments, regardless of business size. Our robust platform accepts major payment methods and is designed for enterprises to maximize profits through simplified recurring payments.

Don't just take our word for it: Forbes ranks Recurly as the best payment platform for high revenue, with a four-star review.

Is recurring payment processing complicated?

It can be if you resort to handling it manually. There are integrations, revenue recovery, subscription billing models, gateway routing, pricing experiments, and much more to consider. Luckily, you don’t have to do it alone. A well-designed subscription billing platform can handle all things related to recurring payment processing.

What are the costs of recurring payment processing?

Subscription billing platforms typically charge a low flat monthly fee plus a tiny percentage of your total transaction volume. The costs also depend on which capabilities you need. Take a look at Recurly’s pricing plans to understand how we charge our customers.

What are some examples of recurring payments?

In the past, recurring payments were used for subscription services for magazines, gym memberships, or cable packages, to name a few. Now, many business models incorporate recurring customer payments for services like subscription boxes, utility bills, TV streaming subscriptions, food delivery, and more.