Why just having a payment gateway for billing is not enough for subscription businesses?

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Payment Gateway is not a subscription billing systemGetting the right subscription payment gateway is crucial for the smooth flow of your business. The system needs to handle ongoing recurring charges and have a host of features that will enable you to easily manage subscriptions. Can the payment gateway handle all the features that a subscription business needs? The answer is No. 

One of the major challenges facing any subscription business is how to continuously accept recurring payments from customers and manage the entire revenue life-cycle of the business. It should therefore have features that make it easy to manage subscription payments. Below are four important features you should consider:

Subscription Management

When a customer pays for your cloud service, the payment system should create a subscription for that customer. The subscription should define what has been purchased, at what price and by whom. Apart from this, the system should be able to:

  • Allow multiple subscriptions for customer who may want to try additional product lines without affecting their existing service.
  • Add, remove or update subscription products i.e. enable upgrade or downgrade for your service.
  • Change the subscription terms and conditions outlined in the customer’s original contract. For example, instead of issuing a refund to a customer, you may agree to extend his subscription by a few months.
  • Allow customers to suspend or cancel subscriptions based on their needs. For example, a customer may wish to cancel subscription for an add-on but continue with subscription for your main service.

Account Management

You need a billing system that will collect all the information you need from your customers such as names, password, payment information, billing information and key contact. The software should also keep the buying process short and minimize shopping cart abandonment. Other features you should look for include:

  • Ability to create free trial accounts. The billing software should enable you either or not collect credit card information from customers for trial accounts.
  • The system should allow your service agents and customers to access and edit the customers’ account details such as locale, preferred currency, tax exemption status, payment terms, payment methods, etc.
  • Customers should be able to update their credit card information on file once they expire. A good system should be able to send notification to the customers via alerts or email.
  • Both customers and your support staff should be able to cancel customer accounts easily. To reduce revenue leakage during cancelation, verify that all due invoices have been paid and cancel any active subscriptions.

Payments

To process your payments and accelerate your cash collection, you need a billing system that supports multiple payment types. Ideally, you should be able to accept electronic payments (e.g. ACH) and external payments (e.g. wire transfers and bank checks).

Other desirable features you should consider include:

  • Support for ad-hoc payments, Subscription businesses usually pay their invoices on a regular basis. However, sometimes customers may not have fully paid their invoice for a previous statement period and this may require them to send ad-hoc payments.
  • The system should allow scheduled payment runs for customers who pay their invoices electronically.
  • If you plan to accept payment through credit cards, make sure your billing solution is PCI-compliant, most of the payment gateways can be configured only through API and they don’t provide hosted checkout page.
  • The system should have dunning capabilities. You should be able to define how many times an attempt should be made to charge a customer’s credit card.

Transactional emails and Communication

For a subscription business, just processing payments isn’t enough. The billing system should be able to send out emails for credit card declines, email receipts, inform about product renewals etc. Most of the payment gateways don’t have this feature.

Transactional emails is the best way for your subscription business to up-sell and cross-sell your existing customers. We wrote a blog post earlier about how you can use transactional emails to your advantage.

The above are some of the things you should consider as a subscription business. Payment Gateways will not be able to support all the features required and that is why you need a subscription billing system. You can focus on creating products people love and leave the billing to a subscription billing solution, which works out of the box.

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Posted on March 2, 2013

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