Experienced business leaders will be quick to tell you that predictability is one of the most important elements in business success. If you can predict an element of your market with a degree of certainty, you can parlay that insight into immense profits. Companies such as Salesforce and Netflix thrive on their predictable revenue streams. Amazon Prime is, undoubtedly, the best example.
There’s no doubt a subscription or membership business model is one of the most resilient and powerful frameworks for business success. However, the conventional financial system doesn’t make recurring billing easy for small and medium-sized businesses spread across the country.
A piece of legislation from the 1960’s known as the Fair Credit Billing Act (part of the “Truth In Lending Act” (TLA)) gives consumers expanded abilities to dispute their recurring billings. In other words, consumers can file a chargeback for services rendered by subscription or SaaS business. A LexisNexus report found that these chargebacks and ‘friendly fraud’ had an impact on both B2C and B2B businesses. The fees and interest rate levied on chargebacks exacerbate the problem and lead to immense losses for merchants.
If your business relies on a subscription model or sells a SaaS product, here’s what you can do to limit chargebacks and improve profits:
Being transparent and communicating your policies and protocols effectively can go a long way towards reducing chargebacks. Customers are likely to appreciate an easy-to-use payment gateway, a recurring policy that isn’t filled with jargon, and a cancellation system that is clear and simple.
Make the recurring billing process as simple as possible. Let customers sign on with minimal fuss and let them know how your service offers value. Summarize the order before you take payment and send regular alerts to your customers to let them know a bill is coming due soon.
While a number of chargebacks are legitimate, some are likely to be attempts at fraud. The use of stolen cards and nefarious algorithms put your company at risk of significant losses. Take a proactive approach and ensure you verify customer IDs and use a payment gateway that complies with PCI-DSS security standards.
Reducing internal recurring billing errors and employee mismanagement is another way to cut down on chargeback risk. Sign up to the automated clearing house (ACH) network to automate the payment process and reduce the risk of error and chargebacks.
A lot of customers simply file a chargeback claim without speaking to the business first. This is where traditional banks and financial institutions help customers get their money back, leaving your business to bear the loss and additional fees. Make sure your customer service team is both proactive and friendly. Talking to your customers and giving them ample information will help them make an informed decisions about buying your services. By keeping your lines of communication open, you can address chargebacks quickly, retain more customers, and avoid the hazards of mismanaged recurring billing.
With the right structure and policies, your business can thrive on a recurring billing model. By offering a valuable service through an easy-to-use and easy-to-cancel payment gateway, you can retain customers for years and lock down revenue that is both substantial and predictable.
Do you offer subscription or SaaS products? Want to enhance your recurring billing system and reduce the risk of fraud?
Visit us at www.nationalach.com to learn more and speak to our expert advisors.