In the tricky world of subscription businesses, payment failures can be a real headache. They can cause significant setbacks that affect both revenue and customer satisfaction.
You’ve been there, right? You’re excited about your growing list of subscribers, but then, like a stubborn stain on your favorite shirt, payment failures ruin the party. Like it or not, these scenarios are common—but there are strategies to help combat this and recover revenue that is rightfully yours.
Understanding why payments fail
Subscription business owners monitor and track their monthly recurring revenue (MRR). After all, it is related to other important metrics like Customer Lifetime Value (CLTV) and churn rate.
When MRR takes a hit or a noticeable downturn, it can mean that the business is losing customers. However, it’s not always black and white. You have to dig deep and pinpoint if the decrease in MRR is due to voluntary or involuntary churn. If the majority of the losses are due to voluntary churn, it is recommended that the business take a step back and focus on customer retention strategies.
But if most of the losses are involuntary, there’s a very big chance that failed payments are the culprit. You’ll be surprised to know that consumer subscription brands actually experience almost 10% loss in revenue just because of failed online payments alone.
Understanding the primary causes of payment failure is the first step in addressing the issue. Payment failures can be due to various factors, such as:
Insufficient funds
When a customer’s bank account lacks the necessary funds to process a payment or they have already reached their credit limit, this can result in a failed online transaction. This cause of payment failure can be particularly frustrating for both the customer and the business.
One way to help prevent insufficient funds as a cause of payment failure is to send reminders to customers before their payment due date. This approach enables customers to maintain sufficient account balances, thereby reducing the probability of payment failures.
Expired credit cards
Credit cards expire, and your subscribers might forget to update their new credit card information or payment details on their subscription accounts. When a customer’s expired card is charged for the monthly or annual fee, any recurring payment attempts will fail.
Security measures
Security measures, such as fraud detection algorithms, also play a vital role in protecting customers and businesses from any suspicious transaction. However, these security measures can sometimes cause even legitimate payments to be declined.
For example, a customer’s credit card card or payment attempt may be blocked due to suspicious spending patterns, faulty internet connection, or if the debit card itself is being used in a different country. Their issuing bank may also have separate security measures that can result in a failed transaction.
Sometimes, overzealous security measures by banks on card details can trigger failed transactions. Make sure your payment processor and payment gateways have robust fraud detection tools.
Outdated information
Processing errors can occur at any stage of the payment process, potentially leading to payment failure. Common sources of errors include incorrect data entry, system malfunctions, and communication difficulties. Prompt monitoring and resolution of any issues can help businesses prevent payment failures caused by processing errors.
Clear communication, diverse and payment method options, and the use of technology for automation and data analysis can help businesses mitigate processing errors and their effect on customer satisfaction.
Mistakes happen, even in the digital world. Ensure your online payment processing system is up to date, well-maintained, and regularly tested to catch and resolve errors promptly.
What will happen if you ignore failed payments?
Put simply, when a subscription business owner ignores failed payments, two major things can happen:
1. Customer churn rate will continue going up
When credit card payments continue to fail, subscribers can be automatically locked out of their accounts. This can lead to frustration—especially if the customer churns involuntarily. If you don’t monitor failed payments, then you won’t know if it’s contributing a lot to your revenue loss. Essentially, ignoring failed payments means you don’t care about your retention rate.
2. Lost revenue will pile up
A few payment failures can easily pile up and hit your revenue hard. Did you know that businesses that track failed payments lose almost 40% less revenue than others? What does this mean? Simple. If you ignore failed payments, you’re saying goodbye to revenue.
4 ways to handle failed payments and recover revenue
Despite best efforts, payment can still fail. In such scenarios, it’s crucial for businesses to manage these situations effectively. Doing so will ensure customer retention and mitigate the impact of churn on profit.
1. Communicate with your subscribers
When a payment fails, don’t leave your subscribers in the dark. Inform customers of payment failure by reaching out promptly, explaining the issue, and offering guidance on how to resolve it.
Proactively communicating with customers about failed payments and providing clear next steps can help resolve issues quickly. For example, you can take the following steps to collect recurring payments:
- Send a courteous and informative failed payment message outlining the subsequent steps.
- Allow customers time to submit payment before implementing definitive measures.
- Give customers the opportunity to rectify the situation.
By following these steps, you can effectively communicate with customers and give them the chance to resolve any payment issues.
Additionally, providing a good customer experience can also help cultivate customer loyalty and prevent additional issues.
2. Choose a dunning software and implement dunning emails
For online businesses with a lot of customers, automating the payment recovery process is an efficient way to ensure that something’s happening in the background to help resolve the issue of potential revenue loss.
Dunning software automates the process of informing and following up with subscribers regarding recurring payments that didn’t go through. Nine out of ten failed payments can actually be sorted out by dunning emails.
Here are some of our recommended dunning software. These can be set up to integrate with your billing systems and email software so you can send automatic reminders to those whose payments have failed. Then, While some subscription businesses stop their dunning flows after a few emails, some set up around five to six before they categorize the subscriber as ‘churned’ and before they deactivae the customer’s account.
3. Set up a customer win-back email marketing flow
When dunning emails don’t work, a customer win-back flow is a solid attempt to get the subscribers back. With an average open rate of more than 29%, customer win-back email flows usually include incentives or discounts to entice subscribers to update their payment information and reactivate their accounts.
4. Explore an all-in-one solution like Recover Payments
While automated emails can no doubt help generate results, some cases need a more personal approach. Recover Payments is an integration and a service. It seamlessly combines a custom integration and human failed payment recovery specialists to facilitate and track the status of revenue recovery.
The failed payment recovery specialists do the following:
- manage dunning emails—strategy, creation, execution, and optimization
- complement the existing dunning sequences by doing personal follow-ups
- analyze subscribers’ responses and feedback
The Recover Payments integration, on the other hand, helps the specialists track the progress of payment recovery more efficiently, with these features:
- dashboard showing agents’ productivity and time spent on recovery campaigns
- real-time data and status of recovery attempts and success rates
- syncing with payment platforms for smooth transactions
Prevention is better than cure: strategies for preventing failed payments
While it’s a relief to know that there are existing strategies to assist in recovering lost revenue due to failed payments, there will be more assurance if these can be prevented.
Conduct regular monitoring and analysis
Maintain open lines of communication with your subscribers. Clearly explain your billing process, notify them before charging, and provide accessible customer support for any queries they may have.
Preventing payment failures involves clear communication with customers regarding payment method, expectations, and due dates. For example, sending payment-due notifications with friendly language, a call-to-action, and sufficient advance notice can have a significant positive impact on churn and retention rates.
Set up multiple payment options
Offering multiple different payment method options to customers, such as credit cards, debit cards, digital wallets, and direct debits, can reduce the likelihood of payment failure. By embracing various online payment methods, businesses can expand their customer base and increase their sales.
For example, there are services that can automatically retry payments with different providers should a transaction fail, ensuring a seamless payment process for the consumer.
Ensure a user-friendly payment process
Simplify your payment process. Make it easy for subscribers to update their billing address and payment information and manage their accounts on your platform.
A user-friendly payment process aids customers in easily updating their payment information and preferred payment method, thereby reducing failures.
In-app payment reminders and a non-intrusive notification bubble can also help customers update their payment information without exiting the application or website. By making it convenient for customers to manage their payment information, businesses can decrease the occurrence of failed payments and maintain customer satisfaction.
It’s time to combat failed payments
Payment failures will always be a part of the journey—but they don’t have to be a constant headache. Armed with the knowledge of what causes them, strategies to prevent them, and effective ways to handle them, you’re well on your way to minimizing these pesky hiccups.
Plus, just because a payment fails, it doesn’t mean that the revenue is already a lost cause. Recover Payments is your reliable partner in handling failed payment recovery.
Contact Recover Payments today, and let’s work together to ensure a smoother, more successful subscription business journey.
