Why Dunning is Wrong for Your Subscription CX
What is dunning?
Dunning means communicating with a customer when a payment has been missed to ensure the bill is paid. The word dunning stems from the 17th-century verb dun, meaning to demand payment of a debt, with a focus on the word demand. Dunning usually begins with a reminder to make the payment and progresses to more stern warnings and can ultimately lead to the customer being passed to a collections agency if the payment still hasn’t been made. Doesn’t sound very nice, right? It isn’t. It’s embarrassing and puts customers on the defensive. Many subscription companies simply don’t know that most failed payments are caused by issues in the payments system and aren’t the fault of the subscriber. Unfortunately, this lack of understanding means the steps a business takes to get their payment can actually harm their customer relationships and increase churn. Here’s why dunning is wrong for your subscription CX and what you should do instead.
Most failed payments are not intentional
Failed payments are an inevitable part of running a subscription business. According to data from Visa, an average of 24% of subscription credit card payments are rejected by the card authorization systems with two-thirds of these rejections being incorrect decline decisions on legitimate cards. This failed payment then leads to involuntary churn if the payment isn’t successfully recovered. In fact, up to 48% of involuntary churn is caused by failed payments. The subscriber didn’t mean to end their subscription, but it was cut short due to the false decline.
Many companies make the mistake of treating these failed payments as intentional, like the customer never meant to pay, and immediately begin the dunning process. But just because a transaction didn’t go through successfully doesn’t mean the customer did anything wrong. Yes, you need to get your payment, but failed payment recovery isn’t the same as debt collection and needs to be handled very differently.
Payments fail for many reasons
There are many reasons why a transaction can fail, such as a lost or stolen card, an expired card, and insufficient credit available to cover the payment (NSF). Sometimes there isn’t any reason at all, and the transaction was simply blocked by the payments system in a misguided attempt to avoid fraud. Banks treat recurring billing transactions as being riskier than one off purchases, leading to legitimate transactions being wrongly declined. This can happen even after a subscriber has previously billed multiple times and is a legitimate customer.
The downfalls of dunning
How you go about recovering failed payments can mean the difference between a customer that churns and one that goes on to achieve full LTV. By its very nature, dunning is a negative process. Repetitive emails and letters that get progressively more threatening destroy the customer experience — exactly what you don’t want to happen. Who wants to stay with a company that’s nagging them to pay when they haven’t done anything wrong? Dunning puts customers on the defensive and should never be the first step you take to recover a failed payment.
Do this instead of dunning
Your goal should always be to maintain a positive subscriber CX and that means holding off on dunning practices that lead to customer dissatisfaction. Instead of using tactics that can harm your customer experience, subscription businesses should use a specialized failed payment recovery solution that can recover all types of failed payments, increase revenue, and help achieve full LTV. FlexPay’s specialised solution begins by working directly with the payments system to recover payments before the customer even knows there was a problem with their payment and is successful for most types of declines.
Why is solving the problem without customer awareness so important? A study* by PYMNTS and FlexPay showed that payment declines can significantly affect subscribers’ satisfaction with their service providers, often leading to customer churn. Payment declines drove 27 percent of affected subscribers to cancel or change providers, with 17 percent canceling and 10 percent switching to a competitor. This type of behind-the-scenes recovery should always be the first step in your recovery process because simply knowing that their payment has failed is a relationship killer for many subscribers.
In cases where customer involvement is necessary — such as when a card has expired and must be updated — the ideal failed payment solution uses aspects of behavioral science to engage with the customer in an empathetic way. These outreach messages use a positive, encouraging tone that motivates the customer to solve the problem so their subscription can continue as usual. And although we are reaching out to the customer for help, this messaging is nothing like a dunning letter that demands the subscriber make their payment immediately— instead of creating fear or embarrassment, the outreach treats the customer as a valued partner in the recovery process.
Subscribers are the lifeblood of your business, so treating them well at all times is absolutely essential. And although a certain number of failed payments are inevitable, the solution you use when a payment fails can mean the difference between a subscriber who stays with you and continues to bill successfully for many more months and one that churns. The kind of payments experience you provide is part of your bigger customer experience, and that means treating your customers with respect even if their payment fails. This simply cannot be accomplished with dunning and its negative, demanding tactics that put the subscriber on the defensive. Instead of jeopardizing your valuable customer relationships with harsh dunning tactics, it simply makes sense to use a sophisticated failed payment recovery solution that can recover all types of failed payments and keep your customers happy too. The success of your business depends on it.
The FlexPay platform uses Invisible Recovery ™ and Engaged Recovery™ to quickly recover all types of failed payments, so you can retain subscribers, increase revenue, and maintain a positive customer experience. Reach out to our sales team to see how FlexPay can help your subscription business.
