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Billing and payment management is reported to be one of the biggest challenges in running a subscription-based e-commerce or SaaS business. Manually reviewing and managing payment information is inefficient and cumbersome, making automated payment setups and recurring subscriptions a major asset for an online business owner.

However, what most businesses don’t expect to encounter are late payments, delinquent accounts, and a high churn rate due to issues and failures in the payment process. In fact, a reported over $40 billion is lost due to unnecessary credit card declines, and out of 1,000 surveyed consumers, 17% have experienced a declined card from an online merchant.

So how can businesses avoid churn while also ensuring payment is received? A positive customer experience is important for retention, so charge issues and declined credit cards must be handled delicately. Many businesses are turning to a process called dunning management to ensure payment issues are handled efficiently with an emphasis positive user experience.

What is Dunning Management?

Failed recurring payments can cost a business time, energy, and even customers. Dunning management is a system that allows businesses to automatically follow up with customers when a payment fails or a credit issue occurs. An ideal system will allow for flexible notifications to be assigned and scheduled for different dates. For example, the FastSpring platform can be set so notifications are sent at two, five, seven, 14, and 21 days after a credit card failure.

A common method is to set up a three-part series of notifications, consisting of:

  • First notice — This message is typically a gentle reminder or alert that the customer’s charge did not go through and the payment method (such as a credit card or PayPal account) may need updating. With the first notice, you assume that the customer is unaware that an issue exists, so you’re extending the courtesy of informing them about it.
  • Second notice — This email may contain more urgent language, emphasizing the importance of resolving the issue. This message can be set to deliver after a chosen number of additional days have elapsed since the failed payment.
  • Final notice — In this last step, a final, sterner message informs the customer that their refusal to resolve the failed payment will result in the cancellation of their account.

Many systems will allow for other combinations of messages as well, including easy-to-customize sequencing and wording of the notifications and select formatting in HTML or plain text.

How to Use Pre-Bill Dunning Notifications

A substantial amount of the customer churn that occurs with failed payments is due to the customer’s credit card expiring before their scheduled auto-payment. Among the myriad of reasons for churn, an expired credit card is one of the easiest to remedy.

Dunning management can be used to remind current clients of an upcoming credit card expiration date. These proactive reminders benefit the customers—they won’t have to pause their service or account while they update their payment information after the expired card fails— and the business enjoys uninterrupted revenue as well.

In addition to notifications regarding expiring credit cards, a dunning management system can also be used to send reminders about annual and biannual subscriptions as they approach renewal. The same system can be put in place for businesses who offer a trial subscription. Instead of automatically switching a customer to the paid version once the trial has ended, a company can establish trust by sending a friendly reminder prior to the switch through their dunning management system.

Choosing to handle late payments, credit card failures, subscription renewals, and all other recurring billing issues through a dunning management system allows businesses to handle the customer interaction with care, while still protecting their own assets at the same time. Instantly freezing a customer’s account as soon as their payment method fails can be too severe, and is often rated as a poor user experience. Opting to overlook a late or missing payment altogether in order to not “bother” a customer can be dangerous for business.

Ready to see what a full-stack e-commerce platform with dunning management features, like FastSpring, can do for your business? Our back office, billing, and storefront services will help you run your business more efficiently than ever before. Get a free FastSpring demo today.