Payment recovery
ˈpā-mənt ri-ˈkəv-rē
Payment recovery is the process businesses follow to reclaim outstanding or missing funds from customers. It can involve a business contacting customers directly or using a service or solution to resolve payment issues. Companies often use payment recovery to reclaim revenue lost due to failed payment transactions.
Why is payment recovery important?
Payment recovery is the main tool subscription businesses use to combat involuntary churn, which occurs when a legitimate payment transaction fails and the subscriber’s recurring order is canceled even though they want to stay subscribed.
Through payment recovery, businesses capture lost revenue, decrease subscriber churn, and extend customer lifetime value (LTV), all of which drive growth and profitability. Butter estimates that failed payments cause 50% of overall subscriber churn, and subscription-focused merchants lose 10% of subscription revenue annually as a result.
Related Article
Involuntary churn: When a legitimate payment fails
What causes failed payments?
There are myriad reasons why payments might fail. Some of the most common are:
- Expired cards: Customers often forget to update their card details.
- Insufficient funds: This is when a customer doesn’t have enough money or credit to cover the cost of the product or service.
- Technical issue: The payments ecosystem is complicated. Payment gateways, payment service providers, and banks may experience connectivity issues and downtime, leading to failed payment transactions.
- Fraud: Banks sometimes block transactions they suspect are fraudulent.
Payment recovery best practices
1. Automate payment retries
Failed payment recovery solutions like Butter automatically retry declined transactions using sophisticated models based on payment transaction data. Unlike other solutions, Butter analyzes 128 data points associated with each payment transaction and uses this information to determine the most effective retry strategy for each failed payment category.
2. Proactive payment reminders
The easiest way to reduce failed payments is to prevent them before they occur. Remind subscribers to update their payment details regularly and inform them of upcoming recurring payments.
3. Simplify your payment update process
A straightforward process for updating payment details will decrease failed payments and payment disputes. Offer multiple payment options, including credit cards, debit cards, digital wallets, and bank transfers.