Airwallex is a digital financial institution that aims to simplify international payments for companies of all sizes. In this article, we will take a closer...
If you run a business and make regular payments to suppliers, you’ll be aware of how time-consuming and stressful this can be.
Automation can speed up the payment process and save you money. Setting up a recurring monthly payment does just that.
Recurring payments allow you to free up precious time while making sure you keep up with your payments.
What does recurring payment mean?
A recurring payment is a regular, repeating payment made to the payee.
A one-off payment is when you send a single sum of money to the payee’s account. A recurring payment is more like a contract requiring a series of ongoing payments to be made.
One example of recurring payment is a phone bill. You have to make a payment each month, so it’s classed as a recurring payment to the phone company.
There are two main types of recurring bills and payments to consider, which are referred to as fixed and variable payments.
Fixed payment refers to a recurring bill that is paid at regular intervals to the payee.
As it is a fixed rate, there are no fluctuations in price.
For example, there are many subscription-based accounting tools out there, such as QuickBooks and Xero. With these services, customers have to pay the same amount of money each month to maintain access to the tools that the software options offer.
The other type of recurring payment you’ll come across often is variable payment.
With a variable payment, the amount you have to pay each month is subject to change. This is due to fluctuations in prices, which affect how much the business has to charge for the same goods each month.
For example, if you are paying for office utilities, you may have to make variable payments. This is because prices can change depending on how much electricity you use in the previous period.
With a variable payment, there will still be an estimated range that the payment will usually fall in. This gives you a general idea of how much you’ll have to pay.
However, the amount due can exceed or go below this range. In this case, the company is obliged to give you 10 days advance notice, so you can prepare for the payment.¹
Now that you’ve got an idea of what recurring payments are, it’s time to see how they work.
Recurring payments can be paid or received.
You can pay a recurring bill to a supplier or company. Or you can receive money on a regular basis via a recurring invoice issued to a customer.
If you’re paying a recurring bill, you need to permit the service provider or company to take money from your bank account.
As explored above, the amount you pay can be a fixed sum, or it can vary from month to month and fall within a range based on use.
Once you’ve given permission, you enter into an agreement in which you are protected by law. According to federal law, you have the right to cease recurring payments to a company, even if you permitted it in the first place.
⚠️ Word of warning, if you have to pay international providers, then you need to consider that the exchange rate can fluctuate month to month.
For example, if you buy 50 crates from the UK each month, you will need to factor in the exchange rate, as well as any transfer and foreign transaction fees. This can result in the recurring payment amount changing slightly each month.
|To minimize the impact of fees and unfavorable conversion rates, you can use a payment service provider such as Wise. With Wise Business, you’ll be able to set up scheduled transfers that will make international payments a breeze.
To receive recurring payments, you will need to provide the customer with your payment details - e.g. your US account number and routing number.
One factor to consider is that customers in different countries might have preferences for one payment method or another. In China, for instance, Alipay is a popular payment service as it accepts the local currency.
You will also need to consider the costs of receiving international payments. Banks often charge fees for receiving foreign currencies.
A Money Services Business (MSB) provider, such as Wise Business, can be worth considering. You can have UK account details, for example, even as a US citizen. Receiving payments to a local account can save your business time and money.
To know whether recurring payments are the right call for your business, you need to have an idea of the pros and cons.
With automatic payments, you reduce the risk of missing a payment.
You can pay invoices on time and save time on admin, improving your business’ cash flow.
Sometimes you can negotiate a small monthly discount with the supplier in some cases.
Recurring payments remove the risk of human error, saving time to focus on other key tasks.
When making recurring payments, you have to be careful to avoid fraud. Always do due diligence and research the company to verify that it is what it claims to be.
If you forget to keep your bank account topped up, an automatic payment can put you into overdraft, which can lead to fees.
With international payments, you could come across fees from your bank for receiving or paying in a different currency. You can avoid this by using a service such as Wise Business - The safe, low-cost way to receive money from abroad.
If you find yourself making payments to companies when you don’t want to, then you can stop these unwanted payments.
Federal law provides protections for this issue. Customers can stop automatic payments from coming out of their account at any point. This applies even when you’ve given your permission for the payments to be taken at an earlier date.²
After learning about the meaning of recurring payments, you’ll see that there are some costs involved in sending and receiving regular payments.
Luckily, there are some ways to save money on recurring payments. Wise Business is a low-cost option for sending money abroad. It’s affordable and safe, offering the mid-market rate for sending money, with no hidden fees.
With Wise scheduled transfers, you can set up regular scheduled transfers online, in over 40 currencies.
You can also use the Wise API to automate any recurring transfers you need to make, so that sending money abroad is a stress-free endeavor.
With all your currencies in a single place, you can manage, convert and pay in different currencies.
|With Wise Business you also can set Auto Conversions. Choose your currencies, the amount to convert, and your desired exchange rate. Wise will then automatically exchange the amount when your desired rate is available. This is a great, easy, and safe way to save money if you need to pay employees or suppliers abroad.
Register online, start saving time and money today.
All sources checked November 9, 2021.
This publication is provided for general information purposes and does not constitute legal, tax or other professional advice from Wise Payments Limited or its subsidiaries and its affiliates, and it is not intended as a substitute for obtaining advice from a financial advisor or any other professional.
We make no representations, warranties or guarantees, whether expressed or implied, that the content in the publication is accurate, complete or up to date.
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