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How to recover and reduce failed payments

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedApr 20232 min read

What happens when your customer’s payment method is declined? In some cases, all it takes is a second swipe of a card to complete the transaction. Yet for businesses collecting recurring or subscription payments, those failed payments can really add up – and even lead to involuntary churn. Fortunately, today’s automated collections processes offer built-in protection to help you recover – and ultimately reduce – costly failed payments.

What causes failed payments?

The root cause of payment failure is friction at some level of the payments process. This can occur at the customer, merchant, or payment gateway level.

Some of the most common reasons for a failed transaction include:

Incorrect payment details: The customer enters an incorrect card number, payment address, verification code or other piece of information.
Insufficient account funds: Whether it’s a credit card or bank account, if there aren’t sufficient funds to cover the cost of purchase the transaction may be declined.
Expired credit cards: Even if the billing details are entered correctly, if the card has expired the transaction will be declined. Customers often forget to update cards on file, particularly with long-term recurring payments.
Issues with gateway configuration: If you haven’t properly configured the payment gateway, issues with payment settings can lead to payments being rejected.
Issues with the payments system: This happens if communication lines are down, the authorizer doesn’t respond to the request, or the system can’t get through for authorization.

Why is failed payment recovery important?

Not only can missing payments lead to a reduction in sales and revenue, but they can also cause involuntary churn. This refers to dropped subscriptions through payment error rather than customer intent. If a customer’s payment details expire during an active subscription, swift communication is key. Otherwise, the subscription may simply lapse due to failed payments.

According to a LexisNexis study, 60% of organizations surveyed reported losing customers due to failed payments, at a global cost to the economy of $118.5 billion in 2020 alone. It takes a toll not only on a business’s bottom line, but also on its customer relationships and reputation when customers stop receiving the services they’re accustomed to. In the case of involuntary churn, they may have no idea that their payment has failed.

How to reduce failed payments

The best way to deal with payment failure is to prevent it in the first place. Here are a few key tips to keep your payments process flowing.

Send automated payment notifications to customers to remind them of upcoming deadlines.
Send notifications to customers alerting them to the need to update their credit card details, making the process as simple and user-friendly as possible.
Offer several different payment methods by choosing an international payment gateway that accepts bank payments as well as credit cards.
Create a frictionless payment process where possible with a single checkout page and streamlined process.

How to recover failed payments

While these preventative measures can help reduce the volume of failed payments each quarter, there’s no sure way to get rid of them entirely. At some point, you’ll need to deal with a failed transaction.

Alert the customer immediately with an automated notification that the payment has failed, including a friendly call-to-action requesting alternative payment.
Set up payment reminders directly within your payment gateway or app. Ideally, when the customer uses the app they’ll receive real-time updates about failed payments and suggestions to help complete the transaction.
Use an intelligent payment retry service like Success+ from GoCardless to reduce failed payments. With our Success+ tool, businesses collect an average of 70% of failed payments on the day best suited to customers. It focuses on creating an optimal customer experience, while improving your business’s cash flow with a 99.1% transaction success rate. You can retry payments up to three times, with full visibility over payment collection. As a result, 89% of businesses reported saving time thanks to GoCardless and Success+.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.