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From Netflix to electronic billing, recurring payments are a crucial service feature of the payments model. Many businesses can benefit from recurring payments as they go beyond streaming platforms. From health insurance to membership-based organizations, property management companies can benefit from recurring payment solutions to reduce the risk of late payments.
This payment model saves businesses from asking for customer payment each week, month, or year-end to pay for the same service. Though it is not a foundational feature, it is an integral part of your service, which can offer customers the convenience of paying for goods or services without paying again on the deadline.
In the case of property management, the recurring payment method enables businesses to collect rental payments for property without asking for payment each time after the month ends. On the other hand, it saves customers from re-entering payments to pay for the same service. While there are benefits to this feature, the recurring payment feature also has some challenges associated with it. This blog will go through the importance of the payment recurring service and its benefits for real estate businesses and discuss the challenges so you can decide whether to consider this to facilitate your customers and company.
What Is Recurring Payment Service?
Recurring payment service, often associated with the Auto-Pay feature, enables a merchant to automatically bill a customer for their purchase of goods or subscription of services at regular intervals. During the process, the merchant seeks consent, allowing them to deduct payment for services through the customer’s bank account when the payment is due.
If a customer doesn’t approve of the auto-pay service, the merchant cannot deduct the payment. Once permission is granted, the merchant can deduct the payment depending upon the due date without needing any more permission. The recurring payments continue until the customer who enabled auto-pay earlier has later retracted the permission.
Benefits of Embracing the Recurring Payment Service in Real Estate
There are many good reasons for choosing the recurring payment service feature for your real estate business. It can help you collect rental payments from customers seamlessly from distant locations. For instance, you can collect payment from Colorado, and New Jersey, even if you are based in New York. Apart from saving time for businesses, here are other reasons to go for this service.
1. More Predictable Cash Flow
Businesses enabling this service allow them to predict their cash flow, which makes this model the best of other payment models. It has twofold benefits. One benefit is that payments are scheduled at regular intervals. This practice can help you navigate outstanding payments to improve your cash flow. Another advantage is that it prevents major fluctuations that could occur due to delayed payments.
The second method is that the recurring payments are automatic; neither the business side nor the customer side has to make an effort to prompt the payment process. It only requires customers to allow consent first by filling in their credit or debit card information to automate rental payments. The transaction doesn’t involve the human element during the process, providing automation in the AR collections process for the business.
Another good reason that allows businesses to predict cash flow is that they will know the exact amount of money that businesses will receive. With this recurring payment approach, businesses can enjoy a steady stream of cash flow, enabling them to better strategize for the future.
2. Reduced Customer Acquisition Costs
This is the cost that a company spends in the marketing and sales efforts to acquire a customer who spends and purchases the company’s products or services. Customer acquisition cost (CAC) is reduced with the recurring payment method because the customer is already associated with the company’s services. Instead of putting a customer away with the payment system, using a recurring payment system will save businesses additional resources required to persuade customers to engage with their products or services.
With recurring payments, real estate businesses can benefit from frictionless rental income as customers using digital payment methods can conveniently pay. This hands-off approach to payment systems makes it more competitive for businesses to engage customers without spending heavily on marketing to acquire a customer.
3. Increased Business Value
The recurring revenue model contributes to raising the business value because it makes the revenue stream more predictable and ensures a constant cash flow for a business. This makes a business with recurring revenue more competitive than those with no regular revenue streams. With this recurring revenue model, there is more stability in a business’s cash flow as it helps streamline accounts receivable collections. This approach reduces the chances for a business to lose customers and boosts its valuation, owing to the recurring payment model. With the business value increased, there are opportunities to welcome new investors to the business.
The Challenges of Recurring Payments
While there are benefits of recurring payments, like improving revenue streams and increasing growth opportunities, there are also some limitations to the system for the real estate industry.
1. Potential Technical Issues
One of the significant disadvantages of recurring payments is reliance on technology to bill customers automatically on a regular basis. This might result in undercharging or overcharging customers if not configured correctly. Or there may be other processing problems that may result in disruption of the payment collection. It also requires backups to prevent potential technical issues.
2. May Turn-Off Customers
There is a possibility that this payment method upset customers as the payment is deducted from their account, which might not be on top of their minds when paying rent at the end of each month. They might find it uneasy and might discontinue using this model. Businesses that implement this model with existing customers may also face the possibility of customers getting irritated due to the recurring billing model.
3. Setup Is More Complicated
For businesses implementing this model, setting up recurring payments can be challenging due to the need for a reliable billing mechanism. It requires careful attention to ensure the system is not only secure but also compliant with industry regulations. Failure to navigate these complexities can result in a time-consuming and arduous setup process.
4. Plan Changes Can Be Difficult
After setting up a recurring payment system, making changes to plans can pose challenges. Upgrading the system and notifying all rental customers about the modifications can be a complex and time-consuming task. Additionally, it runs the risk of displeasing customers accustomed to the previous plan if not handled carefully.
The Verdict
So, to answer the question of whether you should implement the recurring payment model in the real estate industry, there is no straight answer. Because the system is improving and will navigate the above challenges over time. However, some businesses are offering an updated version with fewer complexities. So, if you implement the system for rental payments, make sure to compare different service providers. Using this solution can reduce admin to ask for payments door-to-door and helps collect payments for a more stable cash flow. After considering your customer’s purchase pattern, competitor’s offerings, and service/product, you can determine whether to implement this feature to reap its benefits.