The SaaS-based business model came as a blessing for businesses, and the pace of its expansion is significant proof of this. Moreover, the industry is expected to grow to much greater heights in the years to come.
The extent to which generating new customers is crucial to every SaaS business, and so is the retention of customers. Customer retention aids in reliable recurring revenue and word-of-mouth referrals, which are paramount to generating new leads.
Subscription renewals act as the fuel to the revenue generator of software as a subscription business. However, many pitfalls are there on the road to recurring revenue; SaaS payment failure impacts businesses' cash flow adversely.
This article will highlight what SaaS payment failure is, its causes, and solutions to avoid losing customers to payment failures. Keep on reading to learn more.
SaaS Payment Failures: What You Need To Know?
Software as a Service (SaaS) payment failure is a significant issue that has a severe impact on businesses that uses SaaS to process payments. It occurs when a SaaS payment gateway fails to process expected payments. This could be due to various factors, including technical issues, human error, or unexpected system changes.
The consequences of SaaS payment failure can be severe and negatively impact any business that uses SaaS to process payments. When payments fail, customers may be unable to make purchases, eventually losing out of a valuable asset to the company. This leads to customer dissatisfaction and has a long-term effect on customer loyalty leading to a decrease in revenue for the business.
What Leads To SaaS Payment Failures?
Before addressing the issue, it is important to understand that customers rely on companies to deduct the amount for the service bought. It spares them time from remembering and manually entering the details every time the subscription cycle renews. They prefer saving their personal card details on the platform for a seamless billing experience.
It is worth remembering that a successful payment has many paving stones in its path to follow. From payment gateways, payment processors, card networks, and the issuing bank, an online transaction needs to go through all the intermediaries before the money reaches the receiving account. Therefore, at any interval can lead to Saas Payment Failures.
The two major categories under which SaaS Payment processing fails are -
Soft Decline and Hard Decline
Soft Decline - The soft decline of payment is a term used to describe a situation where a customer attempts to make a purchase, but their payment method cannot complete the transaction. The most common reason for this is insufficient funds in their bank account. The majority of declines are soft declines.
The soft decline of payment typically does not involve the customer's creditworthiness or identity verification. Instead, it is the customer's bank that declines the payment due to insufficient funds. This can be due to the customer not having enough money in their account to cover the purchase amount or the customer's account being overdrawn.
These are temporary authorization failures, which might get resolved by simply retrying after a certain while.
Hard Decline - 10-20 % of SaaS Payment Failures fall under the category of hard declines. A hard decline of a credit card is when a transaction is declined because of an invalid or incorrect credit card number, expiration date, or card security code. The cardholder's issuing bank or payment processor may have identified the transaction as suspicious or fraudulent.
Hard declines can be inconvenient for cardholders, as these declines indicate permanent authorization failure, which cannot be resolved in a short while. So a retry attempt is not recommended in this case.
**Below mentioned are several reasons why SaaS payments can fail - **
Incorrect or outdated payment information.
insufficient funds
Inadequate payment options
Complex billing cycles
Lack of customer support
Technical issues
Card on hold
Tips for Preventing SaaS Failed Payments
Customer churn and retaining customers are the two significant factors for all subscription businesses since these two determine a business's recurring revenue. Whenever companies take these factors into account, their sole motive is to reduce the number of cancellations. Turning down this measure might feel overwhelming at a certain point; however, it isn't impossible.
Here are some SaaS payment solutions which can be taken at every single stage of the transaction process:
Stage 1: Avoiding Failures Proactively
Pre-dunning emails: - To stop losing revenue to SaaS Payment Failures, it is advisable to nip the issue in the bud at the initial stage. Sending these emails is an effective way to remind customers of overdue payments. They are sent out before a formal reminder or invoice is issued and are an effective way to increase customer engagement, reduce outstanding payments and build customer relationships.
Pre-dunning emails are a critical part of any business's debt collection process. They are often sent out as the first point of contact with customers and provide a gentle reminder to customers of their overdue payments. Pre-dunning emails are usually short and polite and give an opportunity for businesses to build relationships with their customers by providing helpful payment advice and resources.
Active In-App Notifications - In-app notifications are a great way for businesses to send reminders and stay connected to their customers. They are used to alert customers about important updates, offers, and other events that may be relevant to them.
In-app notifications can be used to remind customers to take action, such as completing a purchase or signing up for a service. They can also be used to alert customers about updating card details or keeping a sufficient balance in the account.
Stage 2: Initiating Sales After Initial SaaS Payment Failure
Payment Retry - Payment retry is an automated process that allows businesses to attempt to collect payments from customers when an initial payment fails. Companies can improve their cash flow, reduce customer churn and reduce the amount of time spent on manual payment collection by introducing this automation.
When an initial payment fails, the payment retry process takes over. Businesses can set up their system to automatically retry the payment within a specific timeframe, which can vary from a few hours to several days, depending on the business's policy.
Implement dunning strategy - Creating an effective strategy is critical to managing a customer's delinquency. After an initial transaction fails, it is vital to take the right steps in order to successfully recover the money owed.
Having clear and customized communication regarding the SaaS payment failure helps recover the money lost to the failed transaction. Proper segmenting of your customer base is critical when crafting a dunning strategy. Different customers may require different approaches, so it is important to tailor a strategy to fit each customer's specific needs. This includes establishing a timeline for payment and the frequency and type of communication.
What if all the strategies fail?
You might encounter situations where you may come across a problem where payment fails even after all the strategies have been used.
In that case, it is crucial to take a step back and assess the situation. Checking the payment gateway for any technical errors is the first step after a SaaS payment fails.
If the payment gateway is functioning correctly, it may be necessary to contact the customer to identify the reason for the payment failure. For example, the customer should be asked about their payment method and whether they have sufficient funds to cover the cost.
If the customer confirms that they have sufficient funds, but the payment still fails, it could be due to a processing error. In this case, contacting the payment gateway provider might be necessary to identify and resolve the issue.
Suppose the customer has been unable to complete the payment due to a lack of technical knowledge or a slow internet connection. In that case, it may be necessary to support the customer. This could be a step-by-step guide to making the payment or offering assistance over the phone or via live chat.
If the payment issue persists, then it may be necessary to offer alternative payment methods such as bank transfer or cash on delivery. This will give the customer more options to complete their purchase.
Conclusion
It is essential for businesses to review any failed saas payment attempts and identify any patterns. This helps identify potential issues that need to be addressed before the customer can make a successful payment.
Overall, if the payment fails even after implementing all the strategies, it is essential to take a step back and identify the cause of the issue. Once the root cause has been identified, it is possible to put measures in place to ensure that payments are completed successfully.