With the advent of SaaS migration taking the world by storm, it’s no surprise that many companies are asking questions about handling recurring payments better. Many accounting teams are struggling to keep up with the increased usage of subscription billing models, failing to put in place the software and best practices they need to handle the sheer volume of invoices generated by offering a variety of billing cycles.
The management of recurring payments requires a firm grounding in compliance standards, the automation of time-sensitive and repetitive tasks, and a solid understanding of revenue recognition and deferral schedules. It’s a lot to master. The complexity of introducing a new payment strategy is simply part of keeping up with evolving customer expectations.
The growth of SaaS migration and billing options across industries means that few companies can afford not to put the right tools and best practices in place. Below you’ll learn nine best practices to help you manage recurring payments.
The 9 best practices to help you manage recurring payments
- Understand the nuances of revenue recognition for modern billing
- Invest in security to protect sensitive customer data and payment information
- Establish transparent payment processes to increase customer confidence
- Invest in clear communication at every stage of the billing cycle
- Reduce revenue leakage with a solid dunning strategy
- Monitor subscriber churn metrics with real-time reporting
- Allow customers to choose their preferred billing frequency and day
- Monitor deferred vs earned revenue to comply with GAAP accounting guidelines
- Master recurring payments with subscription management software
Modern billing models can introduce different revenue streams at varying frequencies. Some customers may pay for a year upfront, requiring you to defer the recognition of that revenue until you earn it. In contrast, others may spread the cost of their subscription over time so that you earn and recognize revenue in synch.
Flexibility is the key to success. Chances are that the more options you offer, the more users you will be able to sign up. However, it’s worth noting that introducing various options can strain the accounting department. Brief the entire team on revenue recognition for subscription billing to optimize their efforts and reduce manual labour.
With the rise of cyber-attacks, companies cannot underestimate the importance of protecting customers’ information (particularly regarding payments and billing) from any threat. Nobody is immune, so it would be remiss not to invest in security measures enabling you to collect and store billing information for recurring payments while maintaining your data integrity.
Many savvy customers will check the ratings of the payment portals and systems you implement, so be sure to consider the reputation of your partners. Partnering with established brands that customers recognize makes it easier for them to entrust their payment information to your system. Users will differ in their prioritization of this measure, but many will never sign up if the early stages of the payment cycle do not feel secure.
Have you ever signed up for a subscription service, only to find yourself wondering about a few things later? Maybe you aren’t sure about the service and want to double-check the cancellation terms, or you’re not entirely sure how refunds work, or perhaps you need to update your credit card information. Chances are the payment policies you ticked when you signed up covered all this, but you didn’t have time to read through them thoroughly.
It’s best practice to make payment terms and processes transparent on your website. The reality of today’s world is that there aren’t always enough customer agents on hand to answer all our customers’ questions. Building out knowledge bases, particularly around critical information like payments, will reduce the workload on your team by making most of the information customers require transparent. Measures like this help build customer confidence because they don’t have to suffer long wait times or engage with a defective chatbot.
Often, there’s a disconnect when communicating effectively with our customers concerning minor changes. With so much automation at the heart of SaaS migration best practices, it can sometimes be easy to forget the human aspect of things.
Significant shifts will occur as you hone your SaaS pricing strategies and respond to outside forces such as inflation. Every time there’s any billing or payment process change, you must invest in clearly communicating this to your user base. Inform them of tweaks regardless of how “inconsequential” you think these might be, for instance, security improvements, cancellation policy updates, new billing options, or a change of payment processor.
Failed payments are a fact of doing business. Whether the case is expired cards or a technical error, it still impacts your bottom line. Particularly with subscriptions, it’s critical to recoup as much revenue leakage as possible to bolster monthly recurring revenue (MRR). An effective dunning strategy enables your team to protect against revenue losses more effectively.
Modern billing requires effective dunning management to boost revenue and prevent involuntary subscriber churn. Solid strategies should include pre-dunning communications strategies to remind customers that upcoming payments might fail due to expiring cards. Check out this guide to mastering dunning management for a thorough breakdown of how it prevents revenue leakage and helps bolster your subscriber base against churn.
Effective reporting is a crucial component of successfully collecting recurring payments. With extensive user bases, it’s easy to lose track of subscriber churn, so companies should invest in software that automatically generates reports that reflect key churn metrics.
These numbers are essential for understanding growth and financial health and can be valuable tools for customer acquisition and retention. It’s possible but time-consuming to report on these metrics manually, although, for scaling companies, it may not be feasible to keep track this way. Are you seeing a sharp increase in churns after your free trial? Get curious and find out why. Chances are the churn rate is pointing to something your team has the power to fix.
One of the most significant improvements most companies need to make to their recurring payments is increasing the flexibility around billing frequency. Users will often be subject to different restrictions in terms of cash flow. For instance, smaller companies or individuals might struggle to pay an annual fee upfront, preferring to spread the payment over the year. More prominent companies might work with a fixed quarterly or yearly budget and choose to pay upfront.
The point is that your customers not only like but expect to choose. Offering flexible payment terms and frequencies allows customers to decide which day their payments occur. It is as much about reducing failed payments as it is about increasing customer satisfaction. It is also one of the best ways to ensure customers have enough funds available when the bill arrives.
Compliance with GAAP is one of the main concerns of most accountants. The introduction of ASC 606 and IFRS 15 concerning revenue recognition for recurring revenue may make some companies reluctant to take the plunge. Critical to achieving success is keeping track of earned and deferred revenue, and plenty of guidelines are available to ease your team into the transition. With transparent, auditable reporting in place, compliance doesn’t have to be complicated. Check out this guide to ASC 606 for a primer on the expectations for recurring payments.
It’s almost impossible to keep pace with modern billing without implementing subscription management software. Even the most agile teams will struggle to meet month ends if they stick to older accounting processes and systems. Your software should allow customers to pause payments easily, update billing information or upgrade to a different tier of services. All this functionality must integrate with the backend to update accounts automatically without causing unnecessary confusion.
Look for solutions that speak to the nuances of frequent recurring billing. Make sure you invest in software that enables dunning, streamlined reporting, flexibility around payment frequency, and automation of time-consuming processes that slow your team down. Check out the essential features to look for in subscription management software here.