5 Ways Dunning and Collections Can Prevent Involuntary Churn

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Churn is a key metric for subscription businesses. It’s estimated that 20% of churn can be attributed to involuntary churn i.e churn due to operational causes such as credit card and account information issues. All of which are completely avoidable!

While companies focus on factors such as pricing, customer success, and the use of data and analytics to reduce churn rate, they often neglect a few core, operational measures around dunning and collections that could have a significant impact. These are fairly easy to implement and can save you a considerable chunk in terms of resource savings.

Dunning refers to customer communications when a payment is overdue to ensure its collection (payments received towards invoices that have been issued). These can be in the form of reminder letters, emails, phone calls, etc. Laws regulate the form that dunning can take and it’s generally unlawful to harass or threaten consumers. But the communications can proceed from gentle reminders to firmer communications as due dates approach or pass.

Top 5 ways Dunning and Collections Can Prevent Involuntary Churn

You might think that all credit cards come with an expiry date and there’s nothing you can do about it. Not true! There is something you can proactively do about it – automatic notifications.

Set up your billing system so that it automatically alerts customers 14 days or 7 days before their stored card is due to expire. It’s important you give them enough time to update their account with new information.

In case of failed payments, you must send them clear dunning notifications asking them to provide you with an alternative payment method. Failure to do so means you risk customer abandonment.

Credit card information change for other reasons as well – a subscriber might receive a new card due to an upgrade, new technology (such as the recent adoption of EMC or chip cards), a lost card, etc. While you must certainly allow customers to update their payment information online in a self-service manner, you cannot rely solely on them to do so.

Businesses often handle this the old fashioned way – by chasing customers over phone calls, letters and email to acquire their updated information. This is not only inefficient in terms of time and results, it can also be an expensive process.

It’s best to have a system with an automatic account updater that detects card changes such as expiration date, new card number, account closure and updates your information on time. It must also alert you and your customer when further action is required.

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Even when auto-pay is enabled by customers, you might run into instances when a card payment is denied. This could happen due to various reasons such as a temporary credit limits, network outages, etc but they can often be overcome simply by retrying. Remember, the less you ‘trouble’ your customer for payments, the better.

Identify a system that will allow you to retry failed or incomplete payments. How you retry payments should differ based on your business model and the type of payment method your customer has chosen (for example, retries on a debit card might cause an overdraft fee – which wouldn’t make a customer very happy).

Ideally, you must be able to specify the schedule, frequency and the maximum number of consecutive times retries are attempted. Why is this important? Because, every time an invalid credit card gets retried for a payment, you (the merchant) get charged for transaction fees by the payment gateway. It might also trigger fraud warnings from the payment gateway, processor, or credit card networks if there are too many failed transactions on the same credit card. This can result in your account being marked as high risk and put on hold.

So, when a card reaches the maximum amount of retry attempts, your system should automatically follow up with predetermined actions such as contacting the customer for a new card or payment method, downgrading the account, suspending or even canceling the account.

The subscription business model is unique in that businesses have to repeatedly win over customers unlike the traditional business model where it was all about the single, final sale. So, renewals become critical customer touch points. It’s when a customer reaffirms that they want to continue paying you for your service.

When customers have already authorized you to automatically renew their subscription, it is courtesy that you send them a notification confirming the renewal and informing them about the subscription payment charges to their card.

In cases where auto-renew has not been selected, you must alert the customer beforehand about the upcoming subscription renewal. Simply switching off the service if customers do not renew is a poor way of doing business.Again, don’t expect your customers to remember when their subscription term is bound to expire. Instead, proactively work with them to renew the subscription and avoid a lapse in service. It is best practice to provide non auto-renewal customers with ample notice in case they want to make any changes to their subscription.

Perhaps the ideal subscriptions from a business perspective, evergreen subscriptions are “good until canceled” subscriptions i.e. subscribers will continue to be charged automatically unless they explicitly cancel their subscription.
Since they never expire and don’t have to be regularly renewed (a time when customers decide to to stay or leave) they can dramatically reduce churn and simplify your billing relationship with customers. You will however still need to watch out for card changes, expiries, etc.
Wherever possible, consider offering evergreen subscriptions and minimize churn due to operational issues.

Learn how Zuora can help you manage your subscription billing, dunning and collections in this 2 minute video!

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