Last editedMar 20223 min read
Ensuring your customers pay on time is one of the reasons why more and more businesses are turning to Direct Debit as their preferred payment method. Because Direct Debit is a ‘pull’ payment method, you control when your customers pay you. But this is only half the story.
Payment success - in other words, if the payment successfully goes through once it’s been actioned - needs to be considered as well. When a payment fails, it’s not just the immediate loss of revenue that hurts your business. A failed payment will need to be chased up, adding administrative cost to your business. And if that still proves unsuccessful and your customer churns, you’re hit with a double whammy - the loss of future revenue and the cost of replacing them with a new customer.
In this article, we look three common reasons why a customer payment fails, and how GoCardless helps fix them:
1. My customer’s card details are wrong
If your customers are paying you on a recurring basis - for example a monthly subscription, a quarterly bill, a regular invoice or an annual membership fee - then they probably want to set up the payment once, and then forget about it. But this is impossible if they’re paying by credit or debit card, because cards expire. Typically, new credit and debit cards are reissued every two to three years. And in the meantime, cards can get lost, damaged or stolen.
It’s unrealistic to rely on your customers to provide their new card details every time they are issued with one. As a consequence, payments made by debit and credit card have some of the highest failure rates of any payment method. On average card payments fail 5-15% of the time.
How GoCardless fixes the pain
GoCardless uses the Direct Debit system to collect payments for you. That means we pull money directly out of your customer’s bank account with their permission. Once they have created their Direct Debit Mandate, there’s nothing more for them to do, even if the recurring payment changes in amount. If your customer moves to a new bank, their Direct Debits will usually automatically transfer with them.
2. My customer has insufficient funds
One of the most common reasons why a Direct Debit payment fails is because your customer doesn’t have sufficient funds in their account. In truth, this is not an inherent issue with Direct Debit (or any other payment method), but is caused by your customer not having enough money in their account. However, some Payment Service Providers (PSPs) have taken on this responsibility.
How GoCardless fixes the pain
The first way to fix a failed payment is to know it’s happened. If your customer’s payment has failed to go through, GoCardless will notify you within one working day. You can then use the ‘Retry’ function to re-submit your payment request immediately. Using GoCardless you can retry a payment upto three times, helping you to significantly improve your payment success rate.
GoCardless will also send you an automatic notification if your customer cancels a Direct Debit Mandate, another major cause of failed payments. Cancelled mandates account for around 15% of all failed Direct Debit payments. So once again, it’s better to know it’s happened, so you have time to act.
3. My PSP’s platform is not robust enough
If your business model is based on taking recurring payments, then growth will usually result in you needing to process more payments. Or perhaps you are moving existing customers from card to Direct Debit. In both cases the robustness of your Direct Debit PSPs infrastructure is crucial. If they’re not set up to scale with you, then the technology that underpins their payment process may fail; with your payments failing alongside.
How GoCardless fixes the pain
GoCardless is a tried and tested platform for taking recurring payments at scale. We collect more than £13 billion per year of payments for over 70,000 businesses around the world. Our international payments network connects eight Direct Debit schemes, covering 30 countries; Bacs (UK), ACH (USA), SEPA (Eurozone), BECS (Australia), Autogiro (Sweden), Betalingsservice (Denmark), PaymentsNZ (New Zealand), and PAD (Canada). And we work with more than 200 leading financial and business software providers to make GoCardless available through them.
Our technology infrastructure and processes are routinely reviewed and updated where and when necessary. The recovery procedures for the most essential components of the GoCardless platform are shaped around best-in-class solutions from multiple cloud providers and best practice protocols. This protects our systems from failures affecting our users, and ensures the reliability of our service.
“When customers choose GoCardless, they stay with us for longer and they convert better.” Read DocuSign's story.
Bonus: Predict and manage failed payments with Success+
The above points address why payments fail and what GoCardless can do to minimize the percentage of failures. But some payments will still fail. For GoCardless, approximately 2.5% of payments fail at the first attempt.
But what can you do when a payment does fail? To help address that question we built Success+.
Success+ uses recurring payment intelligence to predict and manage payment failures, including by automatically scheduling retries on the optimal day for each customer.
Success+ helps businesses to efficiently recover, on average, 76% of payments that initially fail*.
Find out more about Success+ here, and how it can reduce the admin burden of chasing failed payments, while helping you create a more customer-centric approach to collections.
Made for payment success
Success+ uses recurring payment intelligence to predict and manage payment failures. Recover, on average, 76% of failed payments.
*76% figure is an average based on 3 retries during a 4 week period, as per a sample of 1000+ in November 2019. **Based on a November 2019 survey of 30 Success+ alpha testers.