How to Stop Direct Debit Failures Killing Your Business
Failed direct debits are a serious threat to subscription and membership based businesses. They are a key churn trigger as customers re-evaluate your service when deciding whether to set up a new direct debit. If you’re business’ lifeblood is subscription or membership services, you need to have your failed direct debit process nailed! Make sure you tick these 3 boxes:
1. Automate a friendly notification from your CRM.
Manual processes will cost you. The objective here has to be to minimise the amount of time from the payment failure to the customer notification being sent.
Depending on the industry, failed direct debits can be a trigger for customer churn in up to 50% of instances. Gym memberships are a prime example. Between 25% and 50% won’t be renewed after a direct debit fail; and this number rises with every day that passes after the declined payment.
We’ve seen automation of payment failure comms - using exactly the same copy and delivery method - reduce churn by up to 18%.
2. Link to a digital payment method.
Understand most customers don’t want to talk to you. Don’t take it personally, just accept it. If you make them talk to you to set up a new direct debit you are simply putting another barrier in their way. Expect fewer customers getting in touch and higher churn.
You need to link to a landing page in your failed payment notification. Here, your customers can enter their updated banking or credit card information.
Beyond the customer experience and churn impacts, there are your internal admin costs. Manual over-the-phone direct debit set-up is error prone and costs business significantly.
A 2014 UK survey found:
- Over 40% of finance departments spend longer than four hours a month fixing direct debit mistakes.
- The cost of rectifying failed direct debit and credit payments is high, with 60% of 200 businesses questioned believing the cost to be at least £50 each time.
3. Waive failed payment charges for a first offence.
Charging customers for direct debit failures is standard practice (and likely a necessary evil to cover bank charges).
BUT, you should let your customers off the hook for a first offence.
Any direct debit failure has your customers re-evaluating your service with fresh perspective. Essentially they are asking themselves whether they should buy your service again. The last thing you want to do is give them an obvious reason to pull the pin. Even if your bank or payment merchant stings you for a failed direct debit, grimace and wear it. It will pay for itself in reduced churn.
What does your customer journey look like for a direct debit failure? If you haven’t checked off these 3 must-do’s, it's very likely you are driving incremental customer churn.