Failed Payments and Involuntary Churn - The Definitive Guide

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| Last Updated: July 20, 2017 |

Reading time: 5 minutes

Failed payments and involuntary churn

How well you plan for the pitfalls (technical and otherwise) that might assail a payment shortens the chasm between how much money you are owed and how much money you are actually getting.

Closely linked, is the concept of involuntary churn or how many customers you lose despite their wanting to continue subscribing to your service (in this case, because they couldn’t get a payment through to you).

The more efficient your renewal process, the fewer customers that will churn out because of a payment issue.

We were so intrigued with payments, involuntary churn and how they interacted that we put together the definitive guide to making concrete plans for it.

The guide contains our list of 23 tactics, structured around the payment failure lifecycle as a whole. This is to avoid talking about a tactic or stage in the life cycle in isolation of the others that affect (or are affected by) it. It is more effective to see the payment failure life cycle as a whole and implement one solution rather than to see it as parts and implement multiple solutions that might conflict with each other.

This post is a brief overview of the tactics.

What is ‘The Payment Failure Life Cycle’?

Dealing, as we are, with recurring, online payments, means understanding that every payment goes through a standard set of chapters in its journey from issuing to receiving bank. The goal is to simulate, as closely as possible, a good old fashioned, face to face exchange of service for money. The challenge is to do with payments gateways, payment processors, card networks or direct debit networks or virtual wallets in between.

Concerned with failed payments, this post will be structured around the stages that a recurring, online payment goes through when it is not successful - what I’m calling the ‘failed payments life cycle’. Like a butterfly life cycle except it’s causing your customers to churn out.

Depending on whether you’re using invoices or not, the payment failure looks a little different:

Invoice based payments Non-invoice based payments
Invoice generated Payment is due
Payment is due First try fails
First try fails Payment Method Retries
Payment Method Retries Dunning
Dunning Post Dunning
Post Dunning

In both cases, the charge can be immediate or delayed, it can be automated (using a card or a direct debit order with the bank) or manual (using cash or a cheque), and it can be recorded and filed automatically (by a billing system) or manually.

Why plan for the payment failure lifecycle as a whole?

Some of the tactics for each stage of the lifecycle are easy to implement and others are not (like branding your invoice or customer bank statement vs. setting up backup payment methods).

Some naturally work together (like the tactics for dunning retries and dunning) while others do not (like different dunning cycles for different segments of customers and a generic pre-dunning email).

Some come with hidden caveats (card updaters will not update international cards, and cards from certain carriers).

Some cater to a certain kind of customer exclusively (payment terms).

The only thing that is certain is that a different combination suits every business depending on need, goals, and the kind of customers they are catering to.

Seeing the lifecycle as a whole (as it relates your business) will help you avoid making the mistake of implementing a tactic that works well within a particular stage of the lifecycle but against tactics that you might have implemented in others.

What tactics can I implement?

Payment due involuntary churn first try failure involuntary churn Retries involuntary churn dunning involuntary churn post dunning involuntary churn invoices involuntary churn

Tying it all together

That’s revenue recovery to fight involuntary churn, in a nutshell. Planning so that there’s never (or there’s rarely, at the very least) a situation where someone who want to pay you can’t. The planning must ideally be proactive (and come before the payment is made) and reactive (because payments are going to fail no matter how proactive you are).

Of the twenty odd tactics here, a different permutation and combination will suit every business. The medley is mind numbing.

In every case, however, seeing the life cycle as a whole is integral to implementing tactics that complement each other as a payment moves through every stage.

Check out the guide to failed payments and involuntary churn for a breakdown of each tactic, insight into how each has worked for other SaaS companies, and a primer on what combination might work best for your business.

These tactics should ideally work like a multi-layered sieve, together, with some catching payments that the others failed to. How good your sieve is fundamentally depends on how you structure these tactics together - factoring in the cost of each, the kind of payments each can recover, and the amount of effort you’ll need from your team and your customers to implement them.

Want to get your payment recovery tactics off the ground in a matter of minutes? Sign up for Chargebee now.

Author of the post

Yohann Kunders

Runaway philosopher | Idealist.
Product Marketer at Chargebee.

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