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Top Recurring Billing Credit Card Processing Mistakes Your Business Might Make

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Posted May 22, 2019

Reliable recurring income is hard to beat in the business world. If your business bills customers on a recurring basis you know how valuable that revenue stream is.

But are you making any of the 5 mistakes below? If so you are losing money. How much may surprise you.

Credit cards. Image credit: lcb via Pixabay (Pixabay licence)

Credit cards. Image credit: lcb via Pixabay (Pixabay licence)

1. Not reading the contract.

It is massively important that you don’t find yourself locked in to a 3 year contract with $500 early termination fees. There should be no termination fees. Another BIG red flag surrounds data portability. Your processing partner will have your customers full credit card data. What if you decide you need to move your billing to another provider?

Payment Data hostaging is one of those problems you never know about until it’s too late.

There are certain providers that essentially refuse to give you or your new payment gateway full card data. They will cite PCI concerns but the truth is they are holding you hostage.

2. Rates versus cost thinking

A business owner thinks “ I want the best rate” and so they ask “What are your rates?”. There are 3  types of rate plans:

1. Tiered: In tiered pricing there are three different rates: qualified, mid-qualified, and non-qualified. The qualified rate is the low rate that the processor will quote you to try to win your business. The mid-qualified and non-qualified rates are significantly higher and often not clearly disclosed.) The card processor then classifies some of your transactions at the qualified rate, and charge you higher rates for any transaction it decides aren’t “qualified.”  Not only does the processor get to choose which of your transactions it considers qualified or non-qualified, it can change the classification at any time.

2. Cost Plus: MasterCard and Visa has floor pricing or cost. Everybody pays that cost. Your business and your processor can’t change cost. What is variable is the set amount you pay above cost. Eg if your rate plan is cost plus 25 basis points [.25%] then the .25% can go up or down. As your processing $ go up your negotiating power on the “plus” should drive drive “plus” down.

3. Flat rate: You may have seen PayPal or Stripe offering 2.9% and .30 per transaction. In most cases this is a better plan than tiered but not as good as cost plus.

You can view the interchange schedules for Visa and MasterCard by following these links:

Never (unless high risk business) agree to tiered pricing.

3. Not understanding credit card declines [and how to reduce]

Credit card declines are a massive issue for recurring billers. Declines stats vary but many businesses see 10% plus declines. The amount of work that goes into collecting these missed payments costs you time and money as well as lost revenue. So what should you do? Make sure your billing partner or payment gateway helps you in the following ways.

1. Make sure you are using the Credit Card Updater program to auto update customer credit cards when a new card is issued

2. Proactively reach out to customers whose cards will decline soon due to expiration date

3. Reactive outreach when you receive a decline

4. Strategically rerun declined cards that were “soft” decline eg NSF

4. Not using ACH Payment Processing

Recurring billers should absolutely use the ACH network via an ACH API Provider. There are 2 BIG reasons why:

1. Processing fees are 80-90% less than comparable credit cards

2. Decline rates typically sub 2% using ACH versus 10+% for credit cards

By offering payment options you may encourage more autopay sign ups.

Every customer on AutoPay saves you invoicing costs. Estimates vary but $8 per invoice is on the low side. That means every AutoPay customer is saving you about $100 per in manual labor and postage. This is year over year savings.

In addition to $ savings AutoPay customers make your business more valuable. Think about buying a business. You have two options: 1-Manual bills/collects payment every month and 2-All customers on AutoPay. Which commands a higher multiple?

Here are 15 Easy Steps to Maximize AutoPay

5. Not having a defined plan to optimize AutoPay participation rates

The Effective Rate” is = total paid in fees/ total $ processed

Compute this # for watch statements Depending on if you are billing individuals versus businesses this rate should likely be in the 2.4-3% range. The more business credit cards you charge the higher the fees will be. The more low ticket items the more debit cards will be used reducing effective rate.

Once you have done this for a few months you will know what the expected costs should be. If you see deviation from this # ask WHY? If your #’s are out of line with the #’s above maybe it’s time to look at other providers.

So take a closer look at your bills, contracts and processes. You may improve cash flow and your bottom line by being more aware and proactive.

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