How to Accept Deposits as One-Off Payments for Recurring Billing

Sometimes businesses require one-time deposits before activating subscriptions and setting customers up for their recurring billing cycles. These deposits serve various purposes. For instance, giving financial security to businesses, and strengthening customer commitment for subscription.

One-time deposits are common in the B2B SaaS landscape and memberships. SaaS businesses often charge one-time payments for service setup or onboarding, while memberships charge them as joining fees. The key, here, is how these deposits are linked with recurring billing cycles, and managed alongside them.

And that’s also where subscription billing software steps in. In this blog, let’s learn how to accept deposits as one-off payments for recurring billing using a capable billing platform.

What is a One-Time Deposit? A Quick Overview

One-time deposits are upfront payments that businesses require before they can proceed with subscription activation. These deposits are not a part of the recurring payment cycle, but instead work like recurring billing confirmations. Only after the business receives the advanced deposit does it begin recurring billing.

So what purpose do these one-off payments serve, and why businesses collect them? The answer is that one-time deposits fulfill various purposes for both businesses and their customers. Here are some of those:

Securing commitment: SaaS businesses charge software setup and onboarding fees as one-time deposits. That is to ensure customer commitment before infrastructure is deployed. In other words, they seek commitment before making an investing in the customer. So the one-off payments justify the provider’s investment in setup, support, integration and resource allocation.

Covering risk: Sometimes, one-time deposits are just collected as security fees. They are refundable, and may be returned when the customer’s subscription term ends.

Prepaying partial value: In this case, the one-off deposit represents a part of the total subscription cost. When this is paid, the customers’ future recurring charges are automatically reduced. Plus, the business also gets to cover the costs of its initial service delivery.

Why One-Off Deposits Make Sense for Recurring Payments

One-off deposits ensure that the recurring payment cycles flow smoothly. How they do that? By securing customer commitment beforehand. When customers make advance deposits, they signal their strong intent for utilizing a service.

Here’s how businesses benefit by making one-off deposits mandatory before recurring payments:

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They prevent non-serious signups

Only those customers make deposits who are actually serious about their subscription. They are genuinely interested in what the business has to offer, and are ready to give the service a chance. Upfront payments discourage signups that lack commitment.

Because behind those are users looking for casual service usage that can be abandoned midway. Such sign ups can do the business more harm than benefit, especially if their operational costs are substantial.

They acquire initial cash flow

If operational costs are huge, then businesses need payments upfront to cover these initial costs better. Otherwise, they have to cover these costs themselves, and that creates a substantial revenue gap for them. And it is risky to expect customers to stay until the service costs have been covered.

They prevent early churn, and endorse long-term commitment

One reason why subscribers churn early is that they have little at stake. Even if their subscription requires monthly upfront payments, still there’s no telling if they will leave after just one or two months. Such churn can be harmful because it doesn’t give businesses the time to recoup their service expenses.

Deposits as one-off payments encourage customers to stay long-term. Because the customers know that they have invested in a service, they are more likely to stay engaged at least until they think their deposits have been justified. Until then they continue with recurring payments smoothly.

Step-by-Step Guide for Setting Up One-Off Deposits

You can set up one-off deposits following these steps, and then use them to enhance your recurring payment cycles:

Step 1: Configure deposit as a one-time charge in your billing system

One-off deposits don’t have any relation to the recurring amounts a customer will be subjected to. Each deposit needs to be tied to the customer account as a one-time payment only. Software like SubscriptionFlow allows you to attach deposits to customer accounts while keeping them separate from their recurring charges.

Step 2: Keep this charge separate from the recurring subscription plan

If deposits are mixed with recurring payments due to poor handling, they can distort your revenue reports. They might accidentally inflate recurring revenue, giving you an inaccurate revenue forecast. Billing software handles this problem for you, as it makes sure that deposits aren’t counted as recurring charges.

Step 3: Ensure it is collected before subscription activation

Since deposits are mandatory for subscription activation, they can be set up as billing triggers inside the billing platform. In other words, invoices for the deposits are first created by the system, and then their status is tracked by it.

So that when a customer deposit comes in, the system updates their invoice status to ‘paid’. And after the invoice gets paid, it initiates recurring billing workflows on its own without requiring manual confirmation.

Step 4: Add it to invoices for transparency

At times, customers are not issued their deposit invoices separately. For example, in situations where they pay their deposit and initial subscription payment simultaneously. When this happens, the business must create an invoice that showcases both the charges side by side: the deposit and the recurring fee.

So that the customers clearly know what has been paid in full, and what amount they will pay again in the future as part of their recurring plan.

Using Billing Software to Create a Recurring Payment Plan with Deposits

Billing solutions like SubscriptionFlow seamlessly tie your customer accounts to both the payment types: one-time and recurring. The software uses the gateway setup of your choice to process the initial deposit payments. After confirming these payments, it auto-prompts recurring billing.

This functionality helps businesses

avoid fragmented payments: Deposits don’t have to be tracked separately. They are attached to customer profiles just like the recurring payments are. It means that there’s no need to keep a separate record for one-off payments outside of the billing software.

activate subscription instantly: SubscriptionFlow facilitates automated flows. It instantly activates subscription payment cycles when deposits are confirmed. This zeroes out the chances of missing a customer’s activation. Moreover, customers don’t have to go through an uncertain waiting period after making their deposits. They can proceed with their subscription in real-time, and that reinforces trust.

link deposits to multiple billing cycles: Customers are given access to the same plans they signed up for. If they paid the deposit for a yearly plan, the software activates that very plan for them without mistake. Hence, differing deposit amounts can be linked to the activation of corresponding subscription tiers.

carry out milestone-based billing: Enterprise level clients with complex requirements may prefer milestone-based billing which doesn’t follow any set billing schedules. Instead recurring billing is conducted when certain thresholds or milestones are met. When the initial deposits are made in this case, the software may not trigger a set recurring payment schedule outright. Instead, you can configure billing rules in it so that it only generates invoices after predefined goals are met.

Challenges & How to Overcome them with Automated Billing

Payment plans based on one-off deposits also come with their fair share of challenges. But with the right billing system, you can overcome them all. These are some scenarios that illustrate this point:

Separate accounting for deposits

Deposits also have to be managed in the revenue ledger. Since they are advanced payments, they also categorize as deferred revenue until certain conditions are met (for example until the customer utilizes what they paid the deposit for). When that happens, the one-time deposit payments are adjusted under the earned revenue.

The key consideration here is that revenue earned from the deposits shouldn’t be mixed with the recurring revenue generated from subscription payments. Otherwise, it can distort your revenue reports.

But platforms like SubscriptionFlow help you maintain clear distinction between the two revenue types by ensuring that the two can be tracked independent of each other.

Managing refunds for early cancellation

When deposits act as security fees, they need to be refunded. Other deposit types may or may not be refundable based on the contract signed between the business and its client.

Early cancellations require fast refund management as well, when refunds are applicable. This adds unnecessary burden to your accounting team. But with up-to-date software, you can automate refund handling as well so that refunds are accurately issued according to your cancellation rules.

Keeping invoices transparent

Deposit payments have to be listed as such on the invoices. This helps customers understand their charges more easily, so that they don’t mistake their one-off payments as hidden or recurring charges. SubscriptionFlow facilitates generation of itemized invoices that list all charges without confusion.

Want to set up your own one-time deposit-based recurring billing cycles? Sign up for SubscriptionFlow today, and start building plans that attract dedicated subscribers.