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Why bank debit payments fail (and what to do about it)

You’ve done the hard work in acquiring and retaining your customers, and your automated payment systems and processes are all set up. It’s time to collect your fees. It’s here that many businesses experience the pain of failed payments, and may struggle to recover all the revenue they were counting on.

When you take recurring or subscription payments, each customer represents significant longterm potential value to your business. So, if a failed payment causes a customer to churn, the impact of that failure is multiplied.

Thankfully, bank debit (AKA ACH debit or Direct Debit) is the most reliable way to collect recurring payments, with success rates of 95-100%, compared to 80-95% for cards. That’s because it’s a bank-to-bank payment method, which means fewer intermediaries and points of failure, and no expired or cancelled cards to deal with.

What failure rate can you expect with bank debit?

Though more reliable than cards, bank debit payments can still fail. Failure rates vary depending on your sector, your customer base, your provider and on whether you have successfully taken a payment from a customer in the past.

We analyzed failure rates across 35,000 of our UK-based customers (more than $5bn worth of historic transactions), and found the average to be around 2.9%, with customers in many sectors enjoying lower failures rates than this (you can see some examples below).

Why do bank debit payments fail – and what can you do about it?

Bank debit payments can fail for a number of reasons, from invalid bank details and bank accounts being closed, to not enough money in the payer’s account.

In reality, of all the reasons a bank debit payment can fail, most are rare. Our historic transaction data shows two primary reasons why bank debit payments fail:

  1. Insufficient funds.

  2. Mandate cancelled.

Reason 1: Insufficient funds

This is by far the most common reason, representing more than 80% of our customers' failures – accounting for 2.38% of the 2.9% average failure rate. Here's what you can do to remedy this:

1) Retry the payment

If you’re using GoCardless through our dashboard, our API, or through certain partner software, you'll see a Retry button in the top-right corner of the payment status page. If you click this button, we'll re-submit your payment immediately. You'll see a new charge date and you can follow the status of the retried payment in the payment timeline.

Payments can be retried a maximum of 3 times. Customers who use our retry function significantly improve their payment success rate.

2) Agree a different payment date

If this is happening regularly, you might want to consider agreeing a better payment date with your customer, for example after they get paid. GoCardless offers daily collections to facilitate this.

Reason 2: Mandate cancelled

This is the second most common reason for bank debit failure, accounting for around 15% of failed payments among GoCardless customers and 0.47 of the of the 2.9% average failure rate. Here's what you can do to remedy this:

1) Contact your customer

In most cases if a mandate is cancelled, you won’t be able to process a payment. But there might be times when a mandate is cancelled shortly after a payment has been submitted. In all these cases, you’ll need to contact your customer to set up a new mandate.

2) Don’t be the last to know a customer is leaving

Unlike other bank debit solutions, GoCardless sends automatic notifications when a payer cancels a mandate, giving you the opportunity to put in place re-engagement initiatives before it’s too late.

UK gym LD Fitness, wins back 9 out of 10 customers who cancel a mandate, by getting in touch with their departing members quickly. Find out more in this customer story.

Optimize your payment retries with Success+

Success+, from GoCardless, automatically optimizes your failed payment retries, using recurring payment intelligence to schedule retries on the optimal day for each customer.

Success+ helps businesses to efficiently recover, on average, 76% of payments that initially fail* - making your collections more customer-centric, reducing the admin burden of chasing failed payments, and increasing your overall revenue.

At the time of writing, Success+ is only available for Bacs payments (GBP). Further schemes and currencies will be available to Success+ over the course of the year. Stay up to date over at the Success+ landing page.

* 76% figure is an average based on 3 retries during a 4 week period, as per a sample of 1,000+ in November 2019.

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GoCardless (company registration number 07495895) is authorised by the Financial Conduct Authority under the Payment Services Regulations 2017, registration number 597190, for the provision of payment services.