How to Select the Right Failed Payment Recovery Solution for Your Business

Subscription businesses are facing new challenges in keeping and attracting customers. Growth rates have slowed, and bringing in new subscribers is getting more expensive. On top of that, more customers are cutting back on their spending, leading to an increase in cancellations.

With these challenges, the smartest move for subscription businesses is to focus on customer retention. But one of the biggest roadblocks to retention is failed payments. If you don’t have a strategy in place to recover failed payments, you could be losing customers unnecessarily.

Keep reading to learn how an effective failed payment recovery strategy helps to reduce churn and improve retention.

The Hidden Cost of Failed Payments

The first step in reducing churn is understanding why it happens.

• Voluntary churn happens when customers actively choose to cancel their subscription. This accounts for about 52% of all churn.
• Involuntary churn (also called passive or accidental churn) occurs when a customer’s payment fails due to a bank decline, leading to an unintended cancellation. This makes up about 48% of all churn and is a major issue for subscription businesses.

A 2023 study by PYMNTS and FlexPay found that half of all companies view declined card payments as a major cause of customer churn. Here’s what they found:

• 26.5% of businesses said failed payments were their biggest cause of churn.
• 23.5% reported that failed payments were a significant contributor to churn.

The most successful companies take proactive steps to address this issue. According to the same study, top-performing businesses are 12 times more likely to use specialized third-party payment recovery software to improve retention and reduce churn.

Best Practices for Recovering Failed Payments

A great recovery solution should not only bring back lost revenue but also keep customers happy and engaged.

How you handle failed payments can be the difference between keeping a long-term customer and losing them due to frustration. The best approach is to work behind the scenes with payment providers so that the customer never even realizes there was an issue. If you can resolve the payment failure without involving the customer, their experience remains smooth and uninterrupted.

Of course, some failed payments require customer involvement—like when a credit card has expired or been lost. In these cases, the way you communicate matters. Messaging should be clear, friendly, and encouraging, rather than putting the customer on the defensive. A well-crafted message can make all the difference in whether they take action to update their payment details or simply walk away.

Making Payment Recovery a Team Effort

Recovering failed payments isn’t just about processing transactions—it’s about maintaining relationships. A poorly handled recovery process can result in lost customers, while a well-executed one can increase loyalty and revenue.

For the best results, payment recovery shouldn’t be left only to customer service or the finance team. Instead, a cross-functional team should take responsibility. Bringing together experts from different departments ensures a well-rounded and effective approach.

Who Should Be Involved?

Finance - Track revenue impact, measure customer lifetime value (LTV) after recovery.

Payments - Implement and manage the recovery process, track chargebacks and refunds.

Retention (Marketing and CX) - Ensure customers have a positive experience, maintain brand consistency in recovery messaging.

Operations - Oversee internal coordination with customer support and other teams.

Technology- Integrate recovery solutions into payment and customer service systems.

Choosing the Right Payment Recovery Solution

Many businesses try to handle failed payments internally, assuming their knowledge of their customers is enough to create an effective recovery process. While internal efforts are a good start, they often lack the sophistication needed for the best results.

Common Pitfalls of Internal Solutions

• Simple retry system: Basic retrying doesn’t address different decline reasons or optimize for each issuing bank.
• Customer service outreach: Can create a frustrating customer experience and increase churn.
• Lack of advanced analytics: Internal solutions may not adjust strategies based on real-time data.

What to Look for in a Recovery Solution

A powerful recovery solution should offer:

• Automatic, behind-the-scenes recovery so customers aren’t disrupted.
• High recovery rates with a focus on keeping customers long-term.
• AI-driven optimization that learns from real bank data to improve success rates.
• Proven results in businesses similar to yours.
• Smart customer outreach that encourages cooperation when manual updates are needed.

For the best results and a great customer experience, it’s important to use a smart technology solution that focuses on both high recovery rates and customer retention. Advanced features like AI can be valuable, but it’s worth asking providers how their AI works and why it’s the right fit for this purpose. Has their system been trained on large, high-quality data sets that include information from issuing banks? This is key to improving recovery rates for different types of declines and banks. Where does their data come from?

When evaluating recovery companies, ask for their recent recovery rates for businesses like yours. A good provider should analyze your failed payment data and give you a forecast of your expected recovery performance. Also, check if they offer customer outreach programs to keep customers engaged and satisfied throughout the process—ensuring not just high recovery rates, but also a positive experience.

Conclusion

With customer acquisition costs rising and growth slowing, keeping your current subscribers is more important than ever. Yet many businesses overlook the impact of failed payments and don’t have an effective strategy for addressing them.

Investing in a strong payment recovery process can significantly improve retention and revenue. By researching your options and building an effective internal strategy, you can turn failed payments into a seamless experience for customers and a major win for your business.

Contact Us

FlexPay helps subscription businesses accelerate revenue and profit growth by recovering all types of failed payments and minimizing customer churn. Contact us to learn more.