Amy Hardison White

How to save time on credit card retries with dunning management

The prospect of a subscription business seems like a goldmine. Develop a product with a recurring revenue model, pitch to your target market, and watch the profits roll in. But what happens when a formerly small business with a handful of credit card subscription payments becomes a larger company with hundreds (if not thousands) of credit card charges to run on a recurring basis?

Though credit cards are a reliable payment source, declined payments happen at shockingly high rates. According to a 2014 study conducted by TrustInsight, 17% of consumers have received a credit card rejection from an online merchant.

The reasons are many: credit cards expire, limits are overdrawn, and holds are placed accounts. If you don’t have a plan in place to manage declined cards, you might end up spending more time managing rejected charges than growing your business.

Luckily, there are tools that exist in many subscription billing providers that automate the process of retrying credit cards, or dunning management. These tools take much of the work off your plate, so you can focus your energies on the true exceptions.

Dunning management allows your business to not only retry declined cards, but also to determine the number of retries, the time lapse in between retries, the types of communication you send to your customer about the retry process, and visibility into the success of the retry attempts (via reporting).

Clearly dunning management is critical to keeping subscription revenues afloat. The next thing you can do to ensure the lowest churn from declined cards is to answer some critical questions about your business. Think about the following:

Before you get started, consider ways you could help customers from making it into your dunning management queue. Check to see if your billing provider offers an automated way to notify customers that their card will be expiring soon. This will give them a chance to update their card before it has the opportunity to be declined. You might also send notices ahead of time when a subscription is renewing, or a free trial is switching to a paid subscription. Both will allow time for customers to proactively update card details.

For cards that end up being declined, determine your overall payment window.How many days are you comfortable with, between the day the card is declined and they day you freeze an account? How many times do you want to retry the card within that window? What’s the time-spacing between retries?

All of these answers are based on your unique situation, but consider some variables when making these decisions. For example, are you selling to consumers or businesses? Consumers may be tolerant of a smaller overall payment window, where businesses might need more time to settle credit card issues. What is the average payment size for subscription payments? Larger payments may dictate longer payment windows as well.

Brainstorm the most effective ways to communicate to your customers. Think about the ways you are already communicating with your customers - emails, text messages, phone calls, etc. Which forms generate the highest response rate? You could also consider using multiple formats - for example, sending emails and text messages for the notification of decline and 1st retry, and then adding on a phone call for the last retry. Once you’ve decided on formats, compose messages for each medium that suit your brand voice.

Make sure you have visibility into the performance of your dunning management program. All of these activities will create a framework for minimizing your losses from declined credit cards. However, it is still important to monitor what you’re doing. Your subscription billing provider will likely have some reporting tools so you can see how many credit cards are being declined, how much revenue you gain from retries, and any losses you incur. Use these reports to learn how customers behave through the process, and what you might change to reduce the incidence of declined payments.

Managing declined credit cards doesn’t have to be a time-consuming hassle. Implementing a dunning management program takes an upfront investment of time, but it puts the process on autopilot. That way, you can focus on running and growing your business.