The Green Sheet Online Edition

July 25, 2022 • Issue 22:07:02

How to handle a customer's failed recurring payment

By Nicholas Cucci
FluidPay

In today's economy, the subscription-based business model is a popular way to ensure steady cash flow for your business. According to Bianca Faidutti's report for Fusebill, bit.ly/2N0IASl, 70 percent of business leaders believe subscriptions are the key to their future success.

The recurring revenue model creates a predictable and consistent stream of income while providing your and your merchants' customers with the convenience of a hands-off approach to paying for recurring goods or services.

However, this model is not without its challenges. Businesses that rely on recurring payments can find themselves in hot water when a customer's payment fails. It's a nightmare scenario for business owners, as it can quickly lead to lost revenue and frustrated customers.

Fortunately, there are ways to recover a failed payment and prevent payment failures from occurring in the first place. If you or your merchants are struggling to manage failed recurring payments, this guide is for you. I'll discuss how to handle a customer's failed payment and explore some of the best methods to prevent future payment failures.

Why do recurring payment failures occur?

Understanding why a customer's payment failed is the first step to recovering the lost revenue and preventing future failures. A recurring payment may fail for a number of reasons. It's important to be aware of them so you can take appropriate steps to prevent or resolve the issue. Three of the most common reasons for recurring payment failures are:

1. The customer has insufficient funds: Unfortunately, some payments simply fail because the account being charged has insufficient funds or the customer has exceeded their credit limit. The customer can usually rectify this by transferring funds into their account or by providing new card information.
2. The customer's credit card information has changed: If a customer's credit card expires or is lost, stolen, replaced or otherwise compromised, their account information will need to be updated. A failure will also occur if a customer's billing address changes and their account information is not updated to reflect the new address. An automatic account updater service (see the “Preventing recurring payment failure” section of this article) can help prevent failed payments.
3. The customer's bank suspects fraud: In some cases, a customer's bank may flag a payment as fraud and decline the transaction. This is usually done for the customer's protection but can occasionally result in a declined payment for a legitimate transaction. If this is the case, notify your customer so they can contact their bank to resolve the issue.

Resolving failed recurring payments

Failed payments are frustrating but can be easily resolved if you have the proper systems in place. The first step is understanding why the payment failed. If you're unable to determine the reason for the failed payment, reach out to your customer through your dunning email sequence to make them aware of their situation.

In many instances, your customer may not be aware that their payment has failed and will still expect to receive the goods or services they believe they've paid for. Ensure that your payment failed message is friendly, clear and concise so that your customer understands the situation and knows how to rectify it.

In most cases, they will likely be able to update their account with the correct information or provide you with an alternate payment method. To retain your customers, give them a few days to update their information before taking further action regarding their account.

Automating payment retry cycles

If you're using a recurring billing system, you likely have the option to schedule automatic payment retries. This beneficial feature allows you to automatically retry failed payments at regular intervals without having to manually intervene.

Set up a payment retry cycle of at least three attempts over the course of one to two weeks if possible. This gives your customer enough time to update their account information or for any deposited funds to become available in their account.

Preventing recurring payment failures

Preventive measures can minimize the number of failed payments you experience and help keep your customers happy. There are three key things you can do to prevent recurring payment failures:

1. Send payment due reminders: Payment due notifications give your customers a gentle reminder that their payment is coming up and helps ensure that they have the funds available when the time comes. Send out payment due reminders at least a few days in advance of the scheduled payment date. This will allow your customers to make necessary arrangements to ensure that their payment goes through successfully. You can also help your customers by sending them a notification when their card on file is nearing expiration.
2. Simplify account updates: If your customer is struggling to update their payment details, they may just give up and cancel their subscription altogether. To prevent this from happening, make it easy for your customers to update their account information in just a few simple clicks.

   Providing them with an intuitive self-service portal where they can manage their account information themselves ensures that they can always have the most up-to-date information on file. Include links to the account management page in your payment due and payment failed reminders to customers, so they're just a click away. You should also make it easy for them to access the page on your website.

3. Use an automatic account updater service: Account updater services help to keep your customer's account information up-to-date, so you don't have to. This type of service regularly checks for changes in your customer's credit card account information and updates your records accordingly.

This helps ensure that you always have the most up-to-date information on file and reduces the chances of a failed payment due to outdated account information. It also helps reduce the time, money and resources you dedicate to reaching out to customers and ensures that they continue receiving your goods or services without interruption.

Nicholas Cucci is the co-founder and COO of Fluid Pay LLC. Cucci is also a graduate of Benedictine University and a member of the Advisory Board and Anti-Fraud Technology Committee for the Association of Certified Fraud Examiners, as a Certified Fraud Examiner himself. Fluid Pay is the ONLY 100 percent cloud-based Level 1 PCI Payment Gateway processing transactions anywhere in the world. Contact Nick at Nick@FluidPay.com.

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