Credit card decline rates for recurring billing: How much is it really costing your business?

Payment processing and the collection rate are immensely important for subscription/recurring billing merchants. In today’s environment credit card decline rates are a massive challenge. Fraud, reissued cards, EMV cards as well lost and stolen cards present multiple problems for billers.

Some statistics*:

  • On average 15% of recurring credit card payments decline with some industries exceeding 30%

  • 30% of all credit cards are reissued each year

  • 1.5 billion EMV chip cards issues in 2015-6

  • 5% success rates in obtaining new info from customer on 1st attempt after decline

*Information based on Visa | MasterCard publications and PLC

So how much money could a business be losing every month by not having a decline management solution?

Let’s use an example business owner with 500 customers billed $100 per month on a recurring basis.  The business is run based on $50,000/month of recurring revenue. Salaries, rent, marketing campaigns and more ALL are tied to that recurring revenue.

Now imagine that 15% of that revenue or $7500/month goes uncollected and NOT because your clients don’t WANT to pay you.

 

What’s the BIG problem? Credit card billing declines

The business now has to:

  • Meet financial obligations

  • Try and contact those customers for updated billing info [estimates are that 1st attempts to update billing info have a 5% success rate]

  • Replace those customers lost due to non-payment

 

The business is losing on three fronts:

  1. Revenue shortfall of 15%

  2. Workflow issues created by manual attempts to update billing info

  3. Customer attrition: There will be need to replace lost clients to maintain same revenue levels

 

By implementing a multi step strategy to mitigate declines you can recover lost revenue, reduce workflow and customer attrition rates.

 

Here are a few strategies:

  • Use the Recurring Indicator when sending transactions. Use of this indicator can improve decline rates and in certain locations reduce processing rates

  • Use Updater programs from MasterCard and Visa that allow for the automated updating of expired and reissued cards

  • Proactively and Reactively reach out to users whose card is going to or has expired

  • Strategically resubmit declined cards due to soft decline reasons eg NSF card

  • For bad expiration date declines resubmit with strategic expiration date logic

  • Consider adding an ACH Payment option - declines rates are significantly lower

  • Leverage “last chance” logic to potentially capture given up on charges

 

How much of the money and time caused by the 15% decline rates might be recovered by implementing the strategies above?

We will base our estimates off a recovery rate of 60% of lost revenue.

That would mean an additional $4500/month in revenue or $54000 annually. If the business was currently spending 10 hours per month on outreach to update information that could also mean 6 hours of time saved. Customer attrition would also be reduced.

You can use a calculator here to experiment with different decline rates, collection rates and revenue.

Credit card decline rates for recurring billers is a massive challenge. SAAS providers that have embedded payment processing must consider a comprehensive decline strategy to address these issues. The application providers that do create a better end user product as well as a competitive differentiator.

Always be on the lookout for an edge your competition does not offer, and leverage that in your client acquisition strategy.

If you would like more information get our 7 Step BluePrint to Maximizing Approval Rate HERE

Discuss your options and how you may be able to leverage an ACH processing option to grow your business.

Credit card decline rates for recurring billing: How much is it really costing your business?

Payment processing and the collection rate are immensely important for subscription/recurring billing merchants. In today’s environment credit card decline rates are a massive challenge. Fraud, reissued cards, EMV cards as well lost and stolen cards present multiple problems for billers.

 

These lead to credit card declines, 15% on industry average. The business now has to:

  • Meet financial obligations

  • Try and contact those customers for updated billing info [estimates are that 1st attempts to update billing info have a 5% success rate]

  • Replace those customers lost due to non-payment

 

The business is losing on three fronts:

  1. Revenue shortfall of 15%

  2. Workflow issues created by manual attempts to update billing info

  3. Customer attrition: There will be need to replace lost clients to maintain same revenue levels.

 

By implementing a multi step strategy to mitigate declines you can recover lost revenue, reduce workflow and customer attrition rates.

 

SS/Info

Credit card decline rates for recurring billing: How much is it really costing your business?

1-Decline rates at 15% for recurring billers. Potentially losing 15% of expected revenue

2-Workflow time and expense trying to collect on this revenue

3-Losing a percentage of customers each month that you can’t get updated billing info

4-Expense of replacing these customers

 

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