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Common challenges when trying to accept recurring 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 editedOct 20223 min read

Recurring billing issues can take a toll on your customer retention rates, so it’s important to streamline this process wherever possible. Here are the most common challenges you’re likely to face when you accept recurring payments, as well as a few tips to minimise them.

Challenge 1: Inefficient invoicing process

If you’re still manually generating invoices and chasing unpaid bills, it’s time to think about automation. When determining how to accept recurring payments, sending an invoice is often the first step. There are a few pitfalls to avoid, the first being an overly complicated invoice template. Customers can quickly become overwhelmed by invoices with multiple charges for multiple subscriptions. Consolidate your invoices where possible to save time for both you and your customer. Ensure that charges are clear and transparent, with all information presented in a logical, scannable format.

Another way to make invoicing easier is to issue a separate bill for one-off subscription charges. For example, if a customer wants add-ons in the middle of a billing cycle or wishes to upgrade their plan, charge this fee separately to the usual recurring invoice. A good, automated invoicing system is the best way to accept recurring payments, cutting down on human error and keeping on top of payments as they’re due.

Challenge 2: Online security issues

As with any online storefront, when you accept recurring payments, you’ll be responsible for gathering, processing, and storing sensitive customer financial data. One challenge for those who accept recurring credit card payments is PCI compliance. This is mandated by the card companies, ensuring that businesses follow all compliance steps to store and transmit card data according to the latest security principles. This involves high-level surveillance and continual system updates, at the risk of financial penalty.

An easy way to ensure PCI compliance when you accept recurring credit card payments is to use a third-party payment gateway. This migrates the responsibility from your business to the gateway, which has the tools needed to adequately tokenise card details on its own servers. Apart from this, be sure to use tools like Address Verification System (AVS) and Card Verification Value (CVV) for card-not-present transactions.

Challenge 3: Catering to customer preferences

While some customers prefer to pay for subscriptions using a debit or credit card, others will have different payment preferences. The best way to accept recurring payments is by offering a variety of options to your customers. Direct bank debits through the ACH system are well-suited to recurring billing.

According to GoCardless figures, using a pull-based direct debit to collect recurring payments ensures that 97.3% of payments go through successfully. By contrast, 10 – 15% of credit card payments fail, which can be frustrating to customers who might prefer a different payment option. In addition to cards and bank debits, consider alternative methods like digital wallets as well to keep your customers happy with their methods.

Challenge 4: Lack of scalability

It’s easy to accept recurring payments on websites when just starting out, but what happens when your business starts to grow? Should you continue using an internal billing system or opt for a third-party payment solution? Determining how to scale up your recurring billing process is a challenge you’re likely to face along with success. In many cases, you’ll need to be able to act quickly as well when subscriber numbers soar. Between online security, different payment methods, and a tiered pricing system, it can become difficult for your own code to keep pace.

Look for scalable payment solutions designed to work with a variety of payment methods and international markets. These should be easy to integrate with existing accounting and invoicing systems at the same time.

Challenge 5: Failed payments

We’ve already touched on the high failure rate of credit cards above – but why does this happen? In many cases, customers don’t intend to stop paying for their subscriptions, but their payments fail due to insufficient funds, inaccuracies, or issues with the connection. This is called involuntary churn and it can take a serious toll on any subscription business’s bottom line.

One way to reduce churn is with dunning management, putting a system in place to automatically retry failed payment attempts. You can also send customers automated reminders if a transaction is declined, giving them the chance to offer an alternative payment method.

The best way to accept recurring payments online is with a pull-based service like GoCardless, which puts the merchant in control of the timing and amount of each payment. The customer only needs to set up the direct debit payments once, after which time the system will accept recurring payments automatically.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.