Prevent SaaS Failed Payments
If you operate a SaaS business, it's an unfortunate fact that all SaaS customers will keep using your solution in the long term. Sometimes customers will outgrow your solution; sometimes, financial difficulties will cause them to churn. Some customers were never a good fit for your solution, to begin with. These situations are unfortunate, but there isn't a whole lot you can do to prevent them from leaving.
There are some instances, however, where customers churn without meaning to. This is known as involuntary churn or passive churn. In this scenario, customers want to keep their subscriptions but are unable to do so because their monthly payments have failed.
Payments fail because of card or financial restrictions, insufficient funds, or expired cards. Failed payments in SaaS are more common than you think, and it can lead to frustration for both the SaaS companies that lose valuable revenue and the customer who was booted from the software they loved to use. Often, customers don't even realize that their payment failed, which makes customer retention even harder.
Involuntary churn can become a significant issue and cost your business thousands in lost revenue, which is why it's critically important to actively try to prevent failed payments long before they occur.
Why Do Payments Fail?
Before we get into the way you can combat failed payments, we have to understand why payments fail.
SaaS companies operate online, and therefore, the most common payment collection for subscription renewals is online payments. While this is convenient for both parties, it comes with a host of problems you need to anticipate. There is a lot that can go wrong with a credit card and with a payment processor that leads SaaS businesses to experience frequently failed payments, including:
- Banks trying to reduce fraud may decline or prevent payments that seem suspicious for whatever reason. The reason for rejection is usually difficult to determine;
- Typos or missing information when customers enter their credit card details online;
- Card issuers may decline or block card payments if they believe the transaction is high-risk or suspicious. This could be for a very simple reason, including mismatched postcodes or information. Some international card payments are blocked due to legislative or compliance rules in the customer's country.
- Invalid API calls due to insufficient testing during the development process. It's important to identify potential errors and issues that may occur during the payment processing stages to avoid failed payments.
- Credit card payments may decline because the user exceeded their spending limit or because the card has reached its expiration date.
Whatever the reason for the churn, you're losing customers and need to boost your payment acceptance rate to keep your SaaS business profitable.
How To Prevent Payment Failures
As a SaaS company, you can spend months acquiring, onboarding, and convincing users to keep using your software. You probably invest heavily in customer support, updates, and maintenance to ensure that your customers keep coming back month after month. Losing customers (and their recurring payments) because of a simple technical glitch or typo is maddening, which is why you should take every precaution possible to prevent payment failures.
Start by looking at the payment failure cycle of your own business. Where and why are you losing subscription payments? Every payment you receive goes through a series of steps; from the moment the customer makes the payment, it goes through the payment provider or card network until it reaches your bank account.
You have to analyze every single step to identify where a payment failure might occur and then implement alternatives and methods for combatting payment failures and ensuring that the entire payment process goes smoothly at every step.
How To Prevent a Failed Payment When Payment Is Due
If a user's card is about to expire, your payments won't go through. Try staying proactive when it comes to preventing payment failure when payments are due by suggesting that your customers keep their cards updated to avoid glitches.
Many payment providers (including Stripe) use processes like card updates to communicate with card issues to automatically update card details before they expire, reducing friction for you and your clients. But if your payment processor doesn't have this functionality, you should try a few other methods:
In-app or Account notifications
If users are already using your product, you should use your app or platform to send reminders and encourage them to take action. In-app or on-platform notifications are a great way of getting their attention. Direct your users straight to your payment page so they can update their details. If your users access your dashboard every day, it's a good idea to post a warning on this page as well.
If your users don't check into their accounts as regularly, you can still remind them about their recurring card payments that are due by sending pre-dunning emails when a card or payment method is about to expire or directly after a failed payment occurs.
It's important to time your pre-dunning emails carefully. Customers won't take kindly to receiving multiple warning emails when their payment is just a day or two late. If a customer uses a payment updater through their payment processors, it can take several weeks for the processor to retry the payment. (This is also why you shouldn't be too hasty about cutting off a customer's subscription immediately). Make sure to wait a few weeks before sending your mailers.
Addressing a Payment Failure
Let's say that you take all of the measures we've highlighted above. However, on the due date, the payment fails. What should you do? Send the dunning emails? Up the notifications? Not so fast. The payment provider may retry the card a few times in the coming days. If the client adds funds to a card that has exceeded its credit limit or updates its card details, the issue will resolve itself.
Wait a week before sending dunning emails. When you do send emails, keep your tone professional and your message simple. You don't want clients to feel embarrassed or threatened by your emails.
A good dunning email should include the following:
- A simple statement of what has happened, e.g., a failed payment. Don't allude to a reason, and don't be accusatory in your tone.
- Remind customers of the value they receive from your solution and what they might lose out on if they lose access to your solution. You could hint that they will lose access without being overly explicit about it, e.g., "We don't want you to lose access to the incredible workflows you've already built. We recommend double-checking your card details to ensure they are still correct."
- Include steps the customer should take to correct the situation, along with a clear call to action. You may state, for example, that you will retry the card within the next few days, so they should visit their profile to ensure all of the details are correct.
It's important to make it as easy as possible for the client to correct the error. Don't require a login if you redirect them to the payment page. Make sure that you use bold letters, clear subject lines, and a mobile-optimized email template so that customers can update their credit cards if they are on the move.
Try sending two to three dunning emails before removing their access to their account. Every email should increase the urgency of your tone. It's a good idea to remind your customer that they can use a different payment method if they can't access their credit card, e.g., you can state that you accept payments via wire transfer or PayPal.
Post-Dunning Techniques For Recovering Failed Payments
It's entirely possible to go through all of this effort without recovering your failed payment. Dunning emails are generally effective, but they may not be enough. If you've already tried the techniques above, there are a few more tips and tricks to consider:
There are several reasons why customers don't update or correct their payment details. Don't delete their account as a knee-jerk reaction. Instead, deactivate the account or downgrade their subscription. Keep an eye on their behavior. If they attempt to log in again or keep using the free version of your software, you might be able to re-convert them to their previous tier at a later stage.
Implement Longer Subscription Periods
Selling annual instead of monthly subscriptions is a quick way of reducing the likelihood of a failed payment, but you should consider this strategy carefully. The advantage of this approach is that customers won't be faced with the dreaded question every month, namely: "Do I really need to keep paying for this software?" It makes it harder for customers to churn, and because they are locked in in the long term, they may be incentivized to use the software more often than they would have if the upfront investment was smaller.
On the downside, customers love the SaaS model because they aren't locked into lengthy contract terms. The initial investment is smaller, so the risk is lower. Forcing customers into longer contracts might cause some resentment among your existing customers and hesitancy for prospects that haven't tried using your software yet.
Instead, give customers the option of an annual subscription fee. Incentivize annual payments with extra features and attractive discounts to convince (not force) them to switch to a longer payment term and keep your monthly subscriptions as an option.
How to Recover Failed Payments (When Everything Else Fails)
You've emailed your users reminding them to update their payment information, implemented in-app notifications, offered alternative payment methods, and even enticed your users to sign up for annual subscriptions...why are payments still not going through?
Emails and notifications aren't always enough to combat involuntary churn. Customers may choose not to update their details because they are on the fence about using your solution. Maybe there are other restrictions preventing them from making an update.
It's always a good idea to get in touch with a simple phone call. It's much harder rejecting a human being than an email. It also demonstrates that you value their business. Speak to your clients about why the provider may have issues processing payments from their accounts. If the client highlights dissatisfaction, you can encourage them to downgrade or try an add-on that meets their needs.
If they highlight financial woes, encourage them to move to a lower tier and highlight how your solution can actually save (or make) money for them.
Of course, recovering failed payments manually isn't always an option, especially with international clients. Payment recovery software can help automate and streamline the communication between you and your customer regarding their payments.
Instead of manually sending emails and reminders during the billing, your payment recovery tools will do the job for you - and provide meaningful insights you can use to reduce involuntary churn in your business.
If failed payments are of concern to you, speak to Subcovery about automating payment recovery and improving payment acceptance in your SaaS business.