Accepting recurring payments: benefits and best practices
Tips / 20.01.2022
It was as early as the last decade, in 2014 to be more precise, when The Economist Intelligence Unit found that 80% of customers “are demanding new consumption models, including subscribing, sharing, and leasing – anything except actually buying a product outright.” And this is where recurring payments have entered the payments landscape to change the way payments and purchases are made – offering customers more value and businesses a more streamlined way of accepting regular, fixed payments.
If you’d like to find out why you should be offering your clients a recurring payments option and what some best practices with these methods of payment are, take a look below.
Why offer recurring payments?
If your business offering lends itself to offering products or services on a recurring basis that can be supported by the recurring payment method, you should definitely take advantage of it. Here are some reasons why:
- To save you time: when an automatic recurring payment has been set up, it requires very little time or maintenance to keep it running and functioning optimally. This means less time spent on administrative tasks such as creating manual invoices, issuing and processing outstanding bills and it also decreases costs of collection.
- To improve your cash flow: recurring payments provide a steady source of cash flow each month, which can really bolster your efforts to predict and forecast revenues effectively. This is also the case in the event that a customer cancels their subscription.
- To improve your customers’ experience: customers appreciate payments that are frictionless. This means not having to stay on top of and remember to pay their bills monthly. With recurring payments, setting up the payment information takes place once only and since the bills will be paid on time, they won’t incur late fees. This frees you as the business owner up to offer customised offers and work on building lasting relationships with your clientele.
- To minimise late payments: since the entire process is automated, it saves you time on chasing late payments, which can also affect your relationship with your customers.
Recurring payments – best practices
Because your subscription business will be involved in the storing and processing of personal cardholder data, it’s vital that you reduce and eliminate cases of fraud, chargebacks and other related issues. This is why following industry best practices is vital. Here are some of the most important ones:
- Prioritise security: first and foremost, to ensure you process cardholder data securely, you need to be PCI-DSS compliant. If you are not, consider opting for a payment provider which is at least PCI Level 1 compliant. Other ways of ensuring customer’s card data safety is by authenticating transactions with Address Verification System (AVS) and Card Verification Value (CVV). Needless to say, failure to keep data safe will lead to a loss of customers, loss of revenue and affect your company’s reputation.
- Get your customer’s written permission: this will help you in the event that a customer disputes the fact that an amount has been debited from their account without their authorisation. The written authorisation should obtain details of the amount to be debited, the day of the withdrawal, the payments period as well as the customer’s signature.
- Be transparent with policies: to bolster customer confidence, your payment policies need to be transparent. Doing otherwise could seriously backfire as you’ll end up losing customer trust and possibly end up with chargebacks and churn. Some of the ways in which you can improve transparency is through your subscription, cancellation and refund policies, terms and conditions, late fees and even add a separate Frequently Asked Questions (FAQs) page to your site to improve transparency even further.
- Let customers know when your policies change: policy changes are a normal part of doing business but it’s also important to communicate policy changes with your customers effectively. This means using the right channels to inform your customers as well as sending your notifications on time. This is not only a legal obligation but will help maintain customer trust in your business.
- Prevent transaction failures: one of the most common reasons for transaction failures is due to insufficient funds. This is why most customers seek to align their subscription payments with their payday or a date which suits them best. Either way, it’s industry best practice to notify your customers that their subscription will be renewed soon and that an amount will be deducted from their account, usually 10 days before this happens.
- Update card information regularly: failure to update card information in your database can result in declined transactions. This may be due to expired, lost or stolen cards. Be sure to find the right solution to help you stay on top of card information that is updated on a regular basis.
- Manage churn: churn refers to transaction failures or technical errors which can lead to non-payment if no steps are taken to resolve the situation. It is self-evident that such churn rates can affect your business’ revenue and lead to a damaged customer relationship. To mitigate this, consider implementing a smart retrying process which uses automatic notifications to let clients know about the payment failure and that several retry attempts will be made to recover the payment.
- Offer different payment methods: in particular, direct debit methods and digital wallets have proven to be reliable methods that can be used to deal with problems that are associated with payment cards such as expired cards, insufficient funds, etc.
- Avoid imposing late fees: you may think that imposing late fees is a natural part of your business cycle – after all, you want to keep all incoming payments coming in regularly. But there will always be some customers who simply pay late. To deal with these situations, it’s advisable to inform your customers of your late fee policy, grab their attention on invoices and send reminders of the late fee before the invoice is due.
Now that you know why you should offer subscription products or services and what some of the industry’s best practices are, you’re ready to take your business to the next level. Recurring payments are a great way of saving you time in terms of managing customer purchases while enabling you to forecast cash flow better and make more accurate projections. There are several best practices which were outlined above to help you on your journey to providing seamless recurring payments.
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