Reduce Credit Card Declines with Automatic Retries and Dunning Techniques

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Recovered Revenue

recd-rev-3-of-5For many merchants, the #1 feature of Recurly software is the ability to recover revenue and stop churn that would otherwise be lost to credit card declines. 

As I described in my previous post, Recurly software updates the card information that’s sent into the processor, in ways that prevent many declines from occurring in the first place. This is the best outcome - since the charge is accepted on the first try, there are no extra charges for retries; no bothering the customer about charging problems; and no risk of churn due to customer inaction or frustration.

When a decline still happens, Recurly software works to turn the decline into an acceptance. We use two main tools:

  • Automatic retries. Recurly retries the charge a number of times, using a flexible, optimized retry schedule.

  • Dunning. Recurly uses a template to send a dunning email to your customer. You can change the look and the content of the email that’s sent (see my next post), the time gap between emails, and how long dunning goes on. (Automatic retries also stop when dunning stops.) 

Automatic retries and dunning run in tandem. Between them, they recover roughly half of total revenue recovery for the typical Recurly customer. (The modifications that Recurly software makes before submitting the charge  recover the other half.) Recovering revenue for a specific charge is also highly likely to prevent that customer from churning out, which makes recovered revenue a gift that keeps on giving.

Important. When dunning stops, automatic retries stop too. So we recommend that you set the dunning emails to run for at least 14 days, to allow both automatic retries and dunning to have a reasonable chance to get results. Set dunning to run for up to 28 days for the best chance of recovery.

How Automatic Retries Recover Revenue

Since Recurly software prevents many card declines, the declines that do happen are due to two main causes:

  • Gateway issues. A gateway can fail to transmit the card information to the processor, so the charge doesn't get a chance to be accepted. There’s no fee associated with these failures, so Recurly software quickly tries again to get the charge through the gateway.

  • Account problems. The customer’s card account may have insufficient funds (NSF) or be under a temporary hold due to non-payment. (About a quarter of US adults don’t pay their bills on time.) These retries cost money, so Recurly software waits a few days before trying again, to give the customer a chance to pay down their card balance.

We have a widely-read blog post showing how many “saves” Recurly achieves for each type of decline. For instance, for NSFs, Recurly “saves” nearly half of all declined transactions.

Using Dunning Timing to Recover More Revenue

Dunning means contacting a customer to let them know about a decline. Recurly begins by fixing the information sent into the card processor in the first place, which prevents many declines from occurring at all.

When a decline does happen, Recurly sends a dunning email when the decline occurs. Recurly then repeats the email as many times as you specify. The default setting in Recurly is to repeat the email two more times, one week apart. (Remember that automatic retries continue while dunning is ongoing, then stop when dunning emails stop going out.) 

This setting - a total of three emails in two weeks, with automatic retries running for two weeks as well - is good for merchants who want to move quickly past customer payment problems and avoid high retry costs, which is a good strategy with small average ticket sizes. You can adjust your strategy to fit your own customer base:

  • B2C. Consumers can respond to problems quickly. Consider sending dunning emails four days apart, to catch the customer on both weekdays and weekends. Try running dunning emails (and therefore automatic retries as well) for two to three weeks total.

  • B2B. It may take a business longer to fix a problem. Consider sending dunning emails weekly and running them for three to four weeks total.

  • Large amounts (B2B or B2C). If there’s a lot of money involved - large ticket sizes, high decline rates, or a combination - consider setting your dunning cycle to 28 days and charting revenue recovery throughout. 

For insight into how your specific customers might be likely to behave when you send them dunning notices, see Recurly’s guide to customer Dunning Profiles.

The chart shows revenue recovery for one Recurly merchant for a single month. You can see that, for this merchant, customer updates – the category that includes the results of dunning emails - are nearly level after 14 days. However, there’s enough recovery from automatic retries in the period between 14 days and 28 days - about an additional 10% - that how long to run dunning and retries every month is a judgement call.

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Revenue recovery from retries and customer updates for one Recurly customer

Tip. Try a little longer on retries than you might be inclined to. Every “save” not only recovers that month’s revenue - it also prevents the customer from churning out. To analyze this in depth, compare the incremental cost of retries to the probability of recovering revenue, the average ticket size, retry costs, customer lifetime value (LTV), and the customer acquisition cost (CAC) incurred in gaining a new subscriber to replace one who churns out.  

See my blog post about dunning from last June for additional tips on how to improve your results.

Changing Dunning Timing in Recurly

If you’re a Recurly customer, follow these steps to change dunning timing:

  1. In the Recurly web app, navigate to your Dunning Management page, as shown in the figure.

  2. Click the + and buttons to adjust the number of times you send the dunning email, called the Payment declined email, to your customers.

  3. Adjust the number of days between emails. The total of all the days should be less than your shortest billing cycle length (28 days for monthly billing).

  4. Choose an outcome if the payment fails at the end of the dunning cycle. We recommend that you choose Expire the subscription rather than Leave the subscription active.

  5. Click Update Dunning Settings to put the changes into effect.

If you choose to expire the subscription, Recurly waits until 10 days after the last dunning email is sent and then terminates the subscription. At this point, the software then sends out an email called Subscription canceled nonpayment, which you can also modify. 

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In our next post in this series, we’ll describe how to change your dunning email content for best results.

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