Recurring billing, also known as recurring credit card processing or auto pay, can be a useful business tool and a valued perk for customers. It gives them the convenience of not having to remember to pay for product or service plans that occur over a length of time.
Payment due dates suddenly require no action, there are no lapses in supply of what you’re providing—and there are fewer late payments for your business to collect. If the customer is using a credit card, ARB can help build their credit, as they can set it up to auto-pay debts, including their monthly credit card bills.
ARB has traditionally been used to collect payments for rent, utilities, memberships, subscriptions and all kinds of repayment agreements. However, the range of retailers offering ARB is broadening at a rapid pace. For instance, some online clothing stores now pick out and send customers outfits each month depending on their size and style. Customers agree to monthly auto debits, don’t have to shop, and receive ready-to-wear outfits right at their door.
While there are many examples, the bottom line is that businesses are finding creative ways to leverage ARB beyond typical memberships and subscriptions, and it’s become more common for a greater variety of business owners.
When set up properly, it’s useful to improve customer retention and predictable cash flow. On top of that, it’s a low-maintenance way to free up valuable resources that might otherwise be spent collecting single payments. However, there are also some common pitfalls that can make the ARB landscape a little rough-going.
Here are 5 mistakes that business owners tend to make when it comes to ARB, followed by the ways you can avoid them.
- Failing to properly disclose the payment terms and conditions of the recurring billing plan.
More often than not, customers don’t know what they’re getting into when they sign up for a recurring billing plan. This is more so true when they’re paying for luxuries, rather than necessities like housing or utilities. Negative option free trials are the big culprits in this space. A customer might start a month-long free trial, skip over the fine print of the agreement, and not realize the free trial will immediately be followed by a recurring billing plan.
Or, the fine print might not properly disclose that part of the agreement. Negative option means they have to take action, like calling customer service, to cancel the automatic payments at the end of the trial. Automatic renewals at year’s end can also throw customers off.
It’s important to clearly display the terms and conditions of the plan, save signed contracts showing that the customer agreed to the recurring payments, and avoid sneaky moves like the negative option free trial, because they all usually lead to disgruntled customers, payment disputes and, ultimately, chargebacks for your business.
- Contact with your business is difficult to make.
If your business is hard to reach, or doesn’t clearly enough display contact information, customers may find it difficult to make changes to their payment agreement—whether that means canceling it, changing their payment method on file, or renewing it. It’s a good option to install updater tools that give customers online accounts through your website, where they can manage their payment plans, especially if you’re only available via phone during limited hours. These account updater tools are built into many payment gateways, such as Authorize.net.
Automatic receipts and notifications can easily integrate with an auto payment plan as well. It’s also important to make requested changes quickly so that customers don’t end up paying any more than they want to.
- Not offering enough flexibility.
A lot of times, customers enjoy the convenience of auto payment plans. What makes it better is the ability to freeze or make changes to their account, rather than be locked into a binding contract. It’s useful for your business to offer them some leeway. Allowing customers to freeze their accounts for a period of time can still pay off in the long run. This is relevant for software-as-a-service plans, gym memberships and more.
If cancellation is the only option for temporary non-use, that customer is more likely to turn to a different provider when they need the service again. However, if you allow them to freeze their account, and keep their rate locked in, that customer is more likely to stay with your company in the long game.
- Lack of incentives to stay on the plan.
For all of the benefits ARB offers your business, it’s smart to offer ARB subscribers benefits, like special deals, to keep them satisfied with and loyal to your service. For example, offering bonuses or discounts to subscribers that increase with the amount of time they spend on the plan will help keep them on board longer-term.
After their first year, lower the rate, or after their second year, offer a free month. Referral rewards are also a good investment because they’ll help attract more customers. There are endless ways to treat ARB customers to perks for their loyalty to your company.
- Your refund policy is too strict.
Businesses with years of experience with recurring billing know that there are inevitably some customer disputes that arise. What the more inexperienced ones might not realize is that offering a refund is a much better alternative than risking a chargeback. Credit cardholders can initiate chargebacks from your business for a number of reasons, including fraud, “not as described” products or services, non-receipt or late receipt of products or services, or by committing fraud themselves by abusing the chargeback system just to get their money back.
Chargebacks are more harmful to businesses than refunds. Excessive chargebacks can lead to fines, hurt your relationship with financial institutions like merchant account providers and sponsor banks, increase your processing rates, and even lead to closure of your merchant account in extreme cases.
ARB plans can accommodate fixed-price or usage-based plans, and are adaptable depending your business’s needs. You can integrate them with different software applications, like easy account updater tools, and manage them through your payment gateway and merchant account provider.
Enhance your payment cycle with reduced effort and build your customer base with recurring credit card processing at its finest by avoiding these common mistakes.
