Managing Recurring Payments in Subscription Billing
In the realm of subscription-based businesses, the focus is often placed on billing—issuing invoices, managing upsells, and co-terming contracts.
However, it’s essential to consider the other side of the equation: the payment process. This aspect presents a significant opportunity for fostering positive customer interactions and is arguably one of the most critical components of the subscription model. Making subscribers feel confident and satisfied with their payment experience is paramount.
Foster Transparency and Maintain Communication
It’s imperative to uphold transparency in your dealings with customers. Avoid any practices that could be perceived as misleading or deceptive, such as hidden fees or unexpected charges. Customers who commit to ongoing payments should have a clear understanding of what they are purchasing, the timing of payment processing, the terms of their contracts, and any applicable one-time fees.
In today’s subscription era, where consumers often manage multiple subscriptions, it’s crucial to keep communication lines open. Regular updates can help customers remember their commitments, thereby increasing the likelihood of renewals. This can include reminders about upcoming payments or sending receipts, even for automatically processed transactions. The goal is to remain relevant and avoid becoming a forgotten subscription that leads to refunds or cancellations.
Securely Store Payment Information
To enhance customer convenience, consider securely storing payment details. This practice automates billing and payment processes, streamlining the customer experience and facilitating faster cash flow for your business. Your billing system should accommodate various payment methods, including credit cards and electronic funds transfers (EFT/ACH), ensuring flexibility in managing payments.
Ensure PCI Compliance
Security must be a top priority in your payment processes. Utilizing a PCI-compliant billing and payment platform is essential for safeguarding customer credit card information during transactions. According to Investopedia, PCI compliance is designed to protect cardholder data and ensure secure processing.
Implement Tokenization
Tokenization is an emerging technology that enhances payment security. When supported by your payment processor, tokenization involves storing an encrypted key linked to customer records. This allows for seamless processing of recurring payments without directly storing sensitive payment information, thereby enhancing compliance while maintaining efficient billing operations.
Monitor Key Performance Indicators (KPIs)
While there is no universal set of KPIs applicable to all businesses, customer churn rate is a critical metric for subscription-based companies. This rate measures the percentage of customers who cancel their subscriptions within a specified timeframe. High churn rates can often be attributed to recurring payment failures.
To effectively monitor success, your recurring payment management platform should be closely integrated with your overall business management system, encompassing financials, orders, customer data, and opportunities. This integration provides valuable insights into payment behaviors, enabling you to adapt your strategies as needed.
Properly Recognize Revenue
In addition to adhering to accounting standards such as ASC 606 and/or IFRS 15, accurately recognizing revenue from recurring payments is vital for subscription businesses. Proper revenue recognition provides a clear view of the organization’s financial health throughout the subscription lifecycle.
Furthermore, accurate classification of revenue facilitates efficient management of customer refunds and cancellations by allowing you to track what has been consumed. This financial data is also crucial for interactions with third parties, including investors and banks, or when preparing for a public offering.
Elevate Your Subscription Billing Management
Subscriptions are only valuable if you’re effectively collecting payments.
SaaS services can be an excellent option for managing recurring payments. They can create a unified system that encompasses subscription billing management, security, compliance, revenue recognition, and reporting—all without the need for multiple disparate platforms or manual data synchronization.
We’re Here to Help
For more information on recurring payments and subscription billing, contact your Moss Adams professional.