Research Gives Insights on Recurring Invoice Recoveries Over Several Segments

Recurly-Research-BlogIn a previous blog, we talked about how Recurly’s machine learning models help recover recurring invoices which initially failed and had entered the dunning process. Today, we want to share some analysis on the recovery rate for such invoices. Knowing what recovery rates are typical for your business allows you to analyze the effectiveness of your dunning strategy and make improvements as necessary.

Many factors such as card type, failure type, dunning window length, and more come into play in deciding whether a retry transaction would be successful or not. These factors ultimately determine how many recurring invoices are recovered through the dunning process. What is the recovery rate, across different segments of data, for recurring invoices which enter dunning? Recurly’s huge data advantage allowed us to dive deeper and look for an answer to this question.

Table 1

Key Insight 1

The table above displays invoices recovered across different card types and failure types. The three most common failure types — generic decline, insufficient funds, and temporary hold — make up more than 90% of all initial failures. Credit cards have a better recovery rate across these types of failures. This is probably mainly due to the differences in rules and regulations for different cards, banks, and merchant categories. 

For example, temporary holds by banks are sometimes shorter for credit cards than debit cards. Another scenario is when a subscriber refuses to complete a debit card payment for an insufficient funds error in order to avoid overdraft fees. Alternatively, they may request a temporary increase to their credit limit so that the transaction can be processed. 

To provide our customers with the best solution for maximizing their recurring revenue, Recurly takes all of these factors into account in our Revenue Optimization Engine.  

Table 2

Key Insight 2

Invoice recovery rates are the lowest for merchants which have a dunning window of seven days or less. This is likely because there is not enough time to recover the failed invoice. Having a longer dunning window allows for more retries on the invoice which increases the chances of a successful transaction. Subscription businesses should consider increasing their dunning window to allow for more retries and higher recoveries.

Table 3

Key Insight 3

Our investigation revealed an interesting pattern related to plan types and invoices recovered: Invoices from monthly plans have a higher probability of recovery than those from yearly plans. There could be multiple reasons for this. Annual plans are usually more expensive than monthly plans which increases the chances of transactions failing due to insufficient funds. Moreover, a year is a long time between payments. A subscriber may move to a new address or change cards and might not remember to update their billing information which would lead to an error when the payment is processed. Or, their card might have expired before the next payment is processed.

One way to mitigate this is to allow subscribers to have annual plans which can be billed monthly. This reduces the likelihood of facing any insufficient-funds errors. Moreover, subscribers would be more likely to remember to make updates to their billing information if they receive invoices every month. 

Recurly can help you with this with our Subscription Billing Terms feature which allows our customers to separate the billing cycle from the subscription cycle. In addition, our Account Updater service checks for changes in credit card accounts and updates them automatically which increases transaction success. This service eliminates many transaction failures caused by a subscriber forgetting to update their billing information.

Overall, we see that across most categories Recurly sees recovery rates well over 50%. This shows how important it is to have an effective dunning strategy to minimize involuntary churn. Recurly’s dunning tools are just one of the ways that we provide our customers with the best solutions to maximize their revenue.

For more exciting research and fascinating insights, please visit our Recurly Research page.

 

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