Dunning Management: 8 Ways To Improve Your Failed Payment Systems

If you’re growing a business based on recurring revenue, you’ve probably already run into the headache that can be failed payments. Dunning management simply refers to the system that oversees all communications around payment issues. Whether you have 400 or 400,000 subscribers, failed payments can be a frustrating and tedious issue to manage on your own.

Thorough dunning management often gets overlooked early on, but in the end it is one of the most important systems to get right.

Don’t believe me? Let’s think about it this way: Let’s say you have a lead, let’s call her Julie. Julie comes into the top of your marketing funnel and it takes your team 2 months of nurturing and guiding before she finally signs up and pays for a subscription. 6 months goes by and Julie is still on board and happy with your product.

One day, Julie’s credit card company sends her a new card, saying the old one had been flagged for fraud. Now Julie has to think of every service she’s subscribed to, and update the card information. But Julie is like most of us… she doesn’t do that. She goes on with her life and doesn’t think twice. At the beginning of month 7, your payment processor goes to charge Julie (per the usual schedule), and the payment fails. If you don’t have the right processes in place for this specific issue, you could lose Julie simply because she forgot to update her card information. Now imagine that happening consistently on a much larger scale; how much money are you losing passively?

This happens all the time with subscription-based businesses. There are so many potential causes for failed payments, it’s invaluable to your business to have the right dunning management system that will monitor failed transactions, find the cause of the failure, and successfully resolve the issue before your customer churns.

If you’re reading this, it’s likely because you’ve been less-than-impressed with your current system. Don’t fret, dunning management doesn’t have to be frustratingly tedious. Let’s walk through 8 proven methods to improve your dunning and decrease your churn.

1. Stop Being Proactive

“The prevailing mantra for retention is all about proactivity. However, in the case of failed payments, reactivity is your ticket.”

I know it seems crazy, but let me explain.

Most “old-school” dunning management systems will send warning emails to the customer BEFORE their card is expired (proactivity). Usually along the lines of “Hey Customer, Your card is set to expire. Please update so we can continue your service.”

This method of contacting the customer before the card declines is called “pre-dunning”, and you simply shouldn’t do it. First off, pre-dunning emails can come across as spammy or aggressive to your customer. Secondly, these warning emails give your customers an opportunity to pause and think about whether or not they really need your service.

In the past, this risk was worth taking since getting ahead of the payment failure was your best bet. But now with new technology, Stripe (and most other payment platforms) will perform automatic card retries when a payment fails. When a card retry happens, the payment processor works with the credit card company to try and figure out the issue before involving the customer.

While being proactive is usually your best bet in business, when it comes to dunning management, being reactive is actually your ticket to success.

Automatic retries are a magic potion for involuntary churn. Stop pre-dunning and let them do their work.

2. Ensure Email Visibility

If you’ve ever handled marketing emails, deliverability is a huge concern. What good is your weekly newsletter if it never even reaches your customer’s inbox? While ensuring deliverability is a no-brainer for marketing emails, many companies fail to consider this key aspect when it comes to transactional emails– and it’s costing them.

Transactional emails often carry a much heavier weight than your marketing emails. Everything from password resets to, yup, you guessed it, dunning emails, are extremely important to your bottom line. What good is your card update request if it never even reaches your customer’s inbox?

Extra reading: What Happens When Your SaaS Transactional Emails Bounce?

When it comes to dunning management, ensuring email visibility should be top priority. It doesn’t matter when the emails send, what they say, or how optimized your schedule is if the customer never even receives the email. So what steps can you take to ensure visibility?

  1. Use an email delivery tool  that works.  We use (and absolutely love): Postmark App.
  2. Set up SPF/DKIM records to build trust, improve deliverability, and help you get paid. (Learn more about SPF/DKIM records here)
  3. Set up alerts for bounced emails so your team can take necessary steps to get in the right inbox. For Churn Buster customers, this can be done via Zapier, Slack, or webhook notifications. Learn more about our email bounce notifications here.
  4. Automate spell check on signups. Use Mailcheck in your signup flow to reduce the number of email misspellings (such as name@gmil.com) that make it into your customer list.
  5. Ensure email updating is easy for your customers. If their email changes, or if a new email takes over the account, make it simple for the customer (or your support team) to update the information. After that, make sure that when an email is updated on your platform, the data is shared across every channel so the customer data is fluid and no issues arise.

3. Personalize Your Emails

When we’re talking about dunning, trust is key. Consumers are more aware than ever of phishing schemes and credit card scams. This makes people weary about clicking on links that are requesting credit card information.How can you combat this mistrust? Personalization. You might be thinking this means inserting first name variables or crafting compelling copy to increase conversions, but it’s all about establishing trust, and often it’s subtle changes that help most.

Keep in mind, these are transactional emails you are sending to established customers. The copy in the email is important, yes, but ensuring those customers can trust who the email is coming from should sit higher on your priority list.

Here are a few quick tips that can increase personalization and trust:

  • Keep your branding consistent: If your marketing emails have your logo on the top left corner, make sure your transactional emails do too.Ensuring your branding is consistent and evident on your dunning emails will give customers peace of mind. That being said, Churn Buster recommends including one plain-text email in your campaigns, just in case your customer has a dedicated filter against HTML emails.
  • The “from name” is recognizable (and from your organization): When dunning management providers don’t supply you with a DKIM DNS record to connect to your domain, any emails they send on your behalf will show in the inbox as: “From: Your Company via dunning-provider.com” or worse, “From: your-company@dunning-provider.com”. This can quickly increase customer anxiety and reduce recovery. In the end, it’s up to you to decide who the email comes from. The right choice usually depends on your current customer communication style. If your customers are used to, or would appreciate, receiving emails from “Name at Your Company”, make sure your dunning emails fit the bill. If they are not quite used to that personal touch, you can send from “payments@yourcompany.com” or “support@yourcompany.com”. Only you know your customers best, so think carefully about this decision; the from name carries a lot of weight when it comes to customer trust.

Hot tip: Try changing the sender as the urgency of your emails increase. If the first emails come from a less recognizable individual in your organization, try sending the more pressing ones from the CEO (or someone easily recognized by your customers).

  • Spice up the copy: Your dunning campaigns should include multiple emails, and each email should have it’s own content. The copy should reflect an increase in urgency as the customer gets closer to cancellation.In addition to changing up the copy for each email, make sure it lines up with your current style guidelines. If your company’s writing style is formal and straight-forward, don’t send overly conversational or witty transactional emails.This all goes back to trust. Your customers will recognize your tone and messaging when it’s on brand–and they’ll also recognize if it’s off.
  • Limit your links: When it comes to dunning emails, getting the coveted link click from your customer is your #1 goal. Limit the number of CTAs, links, or promo within the email to ensure your customer doesn’t get distracted. There should only be one path for them to take, and that is to update the payment info.
  • Create a system for replies: If a customer replies to your dunning emails, you want to make sure that reply lands in someone’s inbox (and that the person receiving the replies knows how to handle them). Even if you are sending your emails from “CEO at Your Company”, make sure the reply-to email is set to someone who can handle those responses. Missing out on customer engagement is never beneficial, especially when it comes to failed payments.

4. Optimize Your Sending Schedule

In a perfect world, we’d all be segmenting our customers to provide the right experience here. More advanced vendors like Recurly and Churn Buster will do this for you, however let’s begin by assuming you’re running a one-size-fits-all campaign.

Generally speaking, you want to hold off before sending your first email when a payment fails. This is extremely valuable, and so often companies miss the mark here. The “easy way” to communicate failed payments is to trigger emails every single time a payment fails. However, 21% of payments will be resolved simply by retrying the same card a couple times.

Prompting unnecessary customer action is a bad idea when it comes to payments, for a variety of reasons. Bad experience is one, and introducing risk during a particularly sensitive part of the customer journey is another. So go ahead and send 21% fewer emails while those recurring payments keep recurring.

First email send timing is the most important piece of the puzzle, so if you’ve made it this far: congrats!

Next, you’ll want to make sure your email frequency feels right, and that you allow enough time for subscribers to update their card before giving up, or canceling a subscription.

Optimal email frequency is a balance between keeping it natural and driving urgency. For a natural feel, look to how you were reaching out to customers while still doing things manually. Were you following up every couple days? Every week? This is a good place to start.

And for urgency, you’ll need to reference your business objectives. Is there a high cost to supporting these unpaid accounts? Email early, email often. Do these folks owe you money as part of an installment plan? Ditto, go after that cash. If cost isn’t a massive factor, go with what feels right.

This same reasoning will help you decide how long to run your win-back campaigns. When support costs are high, you’ll want to downgrade, lockout, and eventually cancel accounts with a more aggressive approach. Low cost, give them ample time to fix those billing issues. Just because they are non-responsive for a while doesn’t mean they are lost for good.

Oh! Remember what we said about segmentation earlier? If you want to go next-level with your customer retention, have a specific plan for the following use cases:

  • Different card decline types (hard decline vs soft decline, especially)
  • High value customers (escalate to customer support)
  • Annual and monthly renewals (annual customers are more likely need a new card on file)
  • Plan types specific to your business
  • Any relevant variable

This can be tough to build out in-house, so reach out to Churn Buster if we can help.

5. Give Your Customers A Seamless Experience

When you get to the point of asking customers to update their card information, you have to understand the nature of your request. When someone signs up for a subscription service, the expectation is automatic payments that they don’t have to concern themselves with. So, you’re asking them to break away from whatever they’re doing and update information they never thought they would need to.

In order to gain positive responses from your update requests, you want to make the experience of updating card information seamless and easy for the customer.

Here are a few tips for optimizing your card update pages to create a painless customer experience:

  • Host dedicated card update pages: Avoid using quick modals for card update forms and splurge for the full page. Modals can easily conflict with the code on the page, creating an issue for both you and your customer. Going for the full-page ensures that as your site grows and changes, card updating shouldn’t be affected.
  • Make the page mobile-responsive: Most of your customers will update their cards using a mobile device. In fact, we see over 70% of updates happening on mobile devices. They will read your dunning email, click through to the page, and (if you’ve got it set up well), quickly input their information. Done deal. If your card updating page is not mobile-friendly, you risk losing these people to simple frustration– and that’s just not worth it.
  • Bypass the log-in: Again, simplicity and ease of use are key on your card update pages. The less friction you add into the process, the more likely your customer is to input that information. If your customer clicks through to update their card info, then is prompted to input a password you’ve established a real hurdle for them. Most people won’t know the password off the top of their head. Some will guess, get it wrong, and feel frustrated. Neither is a good experience, and neither results in a recovered customer. Simply put, if you ask for a password, and they don’t think you’re worth the time to find it, they will churn.
  • Encrypt the page: Keep your customers and their information safe– it’s your absolute #1 priority.
  • Check-in on your pages: It’s easy to forget about card update pages as your company grows. But as site changes are made, things can break. You never want to send a faulty card update page to a customer, it’s a massive load of friction on their experience. Create a schedule to check the functionality of those pages and avoid a massive headache.

6. Reach Out When Appropriate

Automating processes is all the rage– as it should be. However, with every automated system you have, you should set up some checks and balances to make sure things continue to flow correctly. And the same goes for your dunning.

Whether you’re running basic or extensive dunning protocols, there is a time to step in and reach out to customers. You’ll want to set up a system to track non-responsive customers, customers not opening your emails, and high-value customers at risk of churning.

As your campaigns run, the urgency for customer action should increase. Have you sent 5 emails and not a single one was opened? Maybe the point of contact for your customer has changed. This may take some manual work to find the right contact information, but if it’s a high-paying customer, it’s worth the effort.

Is a high-value customer at risk of churning, but have failed to respond to your card update requests? Consider stepping in and sending a personal email (preferably from someone recognizable in your company) and try to get on their radar.

Note: Make sure you get notified of high-value failures. If every failure looks the same to your automated system, a $10 account and a $10,000 account will be treated the same. Set up systems to notify you of high-value failures so you know when to bring in resources and customer success team members to make the save.

Automation is wonderful, and has greatly increased the efficiency of businesses everywhere. But as they say, with great power comes great responsibility. When it comes to dunning management, that responsibility is knowing when to manually step into the process.

7. Ensure Your System Is Built To Grow

If you’re just starting out and you only have a few hundred subscribers, manual outreach may still be possible for your team to handle. But as your customer base grows, you need a system that can easily scale with you.

As you grow, you will find manual outreach becomes a time-suck that your team simply cannot maintain. This is when most companies start with a basic dunning system. While that is a great step, what happens when your customer base grows so big that your basic dunning simply isn’t as optimized as you need it to be?

If you’re using a dunning management system that isn’t flexible enough to be optimized into your workflow as your customer-based grows, you could find yourself scrambling to find a new solution before your churn gets out of control.

Pro dunning systems will be able to handle your growth and continually optimize and improve your campaigns as your customer base ebbs and flows. Here are a few things your dunning software should be able to provide as you grow:

  • Multiple unique recovery campaigns: At first, one basic campaign should work for your customers. But as your base grows, you will have multiple “types” of customers possibly using multiple products on your platform. At this point, you will want to be able to send unique campaigns to those specific cohorts.
  • Custom segments: In order to run unique recovery campaigns, you will need to be able to segment your users based on their specific traits (monthly/annual plans, product name, decline type, etc.). By creating unique segments in your dunning system, you have the ability to better optimize your campaigns and increase their success.
  • Custom retry schedules: As your company scales, you may want to test different retry schedules. With more and more customers coming in (and more cards declining) the ability to use different schedules is paramount to better optimizing those campaigns.
  • Detailed reporting: Running campaigns without accurate data is like throwing spaghetti at a wall and seeing what sticks (I know, an overused metaphor, but it makes my point). We’ll go into this more in a bit, but as you grow, you will want to be able to optimize your campaigns based on accurate performance data.

Finding a dunning management system that is set up to scale with you is extremely important for improving your failed payment handlings. No matter how big your customer base is right now, thinking long-term will save you from headaches in the future.

Churn Buster is set up to provide your business with everything you need currently and in the future. From small businesses to massive corporations, Churn Buster will grow and optimize your campaigns in tandem with your company.

8. Track And Analyze Performance Of Your Dunning Management

Performance visibility is often lacking with in-house builds and basic dunning systems. Remember the spaghetti metaphor from above? If you’re not able to accurately track the success (or failures) of your dunning campaigns, it’s impossible to strategically improve them. You wouldn’t send marketing emails without tracking open rates, click through rates, and more, so why adopt this practice with your transactional emails?

Here are a few metrics you should be able to track in your dunning system:

  • Where is each person in your campaign? (i.e. emailed 3/5 times, next email on Friday)
  • When a campaign ends in a “win”, how did it happen? Did they update their card after the first or third email? Once it was updated, did your system successfully charge it?
  • Are emails getting delivered/opened?
  • Are any of your highest value customer currently at risk of churning?
  • Are your card update pages loading reliably?
  • Which emails perform better? Are they more successful coming from the CEO or from a lesser-known employee? Does subject A or subject B entice more opens?
  • How much money is at risk at any given time? And how much has been recovered?

Wrapping Up:

Failed payments can be a silent killer for your company, if you don’t handle them properly. Involuntary churn may start small, but without proper dunning management set in place, it can quickly become a huge problem and drastically shrink your bottom line. Luckily, you just read 8 sure-fire strategies to improve your failed payment systems today.

If you’re looking for a service that covers all of these bases, you’re in the right place. Your business is unique, so automating workflows to collect past due payments can’t be one-size-fits-all. And that’s what we’re here for.

Here at Churn Buster, we provide a proven set of tools to help you regain control of your churn by resolving failed payments and delivering automated support to your customers.

Request a consultation with one of our churn experts and see how Churn Buster can help your business recover more money.Ready to put an end to involuntary churn once and for all?