Payments are an integral yet difficult element of business. Businesses will have to decide which payment method is best for them. Namely, they will have to decide how often they want to be paid.
There are two main payment models. These are one-time payments and recurring payments. But what is the difference between one-time payment and recurring payment? This guide will tell you everything that you need to know about these payments!
What Is A One-Time Payment?
As the name suggests, a one-time payment is simply a payment that is made only one time. This singular payment is just one transaction. As a result, you can pay for an entire product or service in one lump sum.
For instance, you may choose to pay for a couch with a one-time payment. You can use a variety of payment methods to make this transaction, such as cash, a debit card, or a cheque.
What Is A Recurring Payment?
A recurring payment is a transaction that is made periodically. For instance, you may pay for something once every month or once every year. The frequency with which you pay will
differ, but you must nonetheless keep on top of your payments.
This payment method will necessitate a relationship between the customer and the seller. After all, these transactions could last for years.
Recurring payments are often considered quite an adjustable solution, as these payments can be flexible. However, if you sign a fixed contract, these payments may need to be made by specific dates.
Usually, you will have to use a debit or credit card to initiate this recurring payment. However, a standing order can also be a viable option. This method enables you to make regular payments that will leave your bank account on a chosen date.
There are plenty of examples of recurring payments. For instance, if you pay your rent monthly, this payment is recurring. Another example could be a gym membership.
What Is The Difference Between One-Time Payment And Recurring Payment?
Now that you know a little bit about each of these payment frequencies, let’s dive into some of the qualities that differentiate them. Here are the main differences between one-time and recurring payments:
The most obvious difference between the two payment types is the frequency with which a business will receive payments. With a one-time payment, the customer must only pay once, meaning that the business will receive just one payment.
However, a recurring payment will mean that the business will get money on a more frequent basis, such as monthly or annually.
Recurring payments are considered a fairly flexible payment method for customers. This is because you may be able to pay whenever it’s convenient for you. As a result, you could organize these payments so that they leave your bank account whenever you receive your wage.
On the other hand, one-time payments are less flexible than recurring payments. This is because you will have to make one large transaction, which can be quite difficult when paying for something expensive.
For example, if you pay for a car with a one-time transaction, you will need a large amount of money to make this possible.
So if you want to give your customers some flexibility, offering a recurring payment subscription can be an incredible idea.
Businesses need to have a reliable cash flow. This term refers to the amount of money that is entering and leaving a business’s account. As you can imagine, you will need to have plenty of money coming into the business if you wish to make a profit.
When you only accept a one-time payment, you will have a larger cash flow. However, this is not necessarily an advantage, as it means that your cash flow could be less consistent.
Meanwhile, your cash flow will be less substantial, though you will receive smaller payments. As a result, you will need to decide whether you prefer a consistent cash flow or one that’s larger but inconsistent.
Arguably, recurring payments are reliable. This is because you can predict how much money will enter your business account based on the number of subscriptions that you have.
On the flip side, it’s difficult to predict one-off payments. You simply won’t know how much money is going to come into your account. As a result, you may find it hard to predict how much inventory you require.
A churn rate refers to the rate at which customers will terminate their relationship with a business. Your business doesn’t want a high churn rate. Yet, this can regularly occur if your business has set up recurring payments.
When only one payment is made, this won’t impact your churn rate. So if you intend to accept recurring payments, you must find a way to prevent your churn rate from increasing.
Frequently Asked Questions
What Are Examples Of Recurring Payments?
Aside from the aforementioned examples, recurring payments can include your magazine subscriptions, cable bills, streaming subscriptions, or gas bills. The likelihood is that you will have to make regular payments for these services instead of a one-off transaction.
What Are The Benefits Of Recurring Payments?
There are lots of advantages to recurring payments, such as:
- Sellers will receive regular payments, which ensures that they get a consistent and reliable cash flow.
- You can reach a larger audience. The lower cost for a subscription package means that customers are more likely to sign up for your goods and services.
- The payment is typically automated. Consequently, this payment option is convenient and will require less customer support.
- This option is flexible for customers. Not to mention, it will mean that they only need to provide their payment information one time.
With the help of this guide, you will have gained a deeper understanding of the differences between these two payment models.
It’s essential for businesses to understand the difference between these two payments, as it will allow them to find the one that works best for them. These two payment frequencies make it easier than ever before to sell goods and services!
Paul Martinez is the founder of EcomSidekick.com. He is an expert in the areas of finance, real estate, eCommerce, traffic and conversion.
Join him on EcomSidekick.com to learn how to improve your financial life and excel in these areas. Before starting this media site, Paul built from scratch and managed two multi-million dollar companies. One in the real estate sector and one in the eCommerce sector.