If you’re a CFO who has implemented a recurring-revenue/subscription-based business model for your company, congratulations! Your company is on its way to enjoying smoother and more predictable revenue streams, along with significantly higher valuations from investors.
But your work has just begun. Now it’s time to consider how to optimize your recurring revenue business. How can you cut costs, streamline and automate processes, reduce errors and speed up payment collections?
A Better Way
CFOs across the recurring payments industry are looking for better ways to collect subscription payments.
Credit cards can do the job, but they weren’t designed for the recurring revenue business model. But bank debit—also known as direct debit, ACH or auto-pay transfer—is an ideal method for collecting recurring payments.
Why bank debit? It enables the payee to collect a flexible amount at either a fixed date or a flexible date. That’s an advantage over a standing order—a fixed payment at fixed dates—which requires customers to make changes manually if they want to move the payment date or change the payment amount.
The chief advantage for bank debit is that it costs less for the payee than credit cards — typically 1% per transaction, compared to 1.5% to 5% for credit card payments. A bank debit payment arrangement also means less work for the payee, with a minimal risk of failed payments due to expired cards or customer forgetfulness. Plus, bank debit adoption has become widespread in Europe and it’s on the rise in the U.S. and other parts of the world.
Listing the Advantages
Organizations that accept recurring bank debit payments enjoy several distinct advantages over those that take payments via credit card, bank or wire transfers, or checks.
At the top of the list: Their revenue increases. This is because they can better meet their customers’ demands to have the ability to pay by bank debit in more markets, and they can ensure high customer payment conversion rates. They’re also able to limit customer churn related to payment failure and their risk associated with recurring payments is reduced.
Organizations with bank debit payment systems have several other advantages that contribute to their bottom lines. Their costs per transaction are lower than with other payment types. Their staff spends less time on managing, expanding and integrating their payment platforms. Their customer service and finance teams are more efficient with time involved in payment activities. They enjoy expansion opportunities in new international markets. Their customer relations improve by meeting their customers’ preference for bank debit, which is especially high in Europe, and by providing higher reliability for payments processing. And their cash flow improves.
Putting it in Perspective
To put these benefits in perspective, consider a few specific figures and real-life examples.
An independent survey of customers of GoCardless, a platform for accepting recurring bank debit payments, showed that their recurring transaction revenues rose 54% after implementing the platform. Their payment cash flow was 47% faster and their cost per transaction was 56% lower than with other payment types.
Separate from the survey, one customer, Autotask, reported its payment collection times were 3.5 to 6 times faster than with other payment methods. Another customer, intY, reported its collection times were cut 67% and its revenues increased 500%. And DocuSign, another customer, reported higher customer retention rates than with other payment types, along with a 14% higher average selling price.
For CFOs, the key takeaway is that companies with recurring revenue or subscription-based business models should strongly consider how they can build their payment collections around bank debit. It’s not only a pathway to significantly lower costs, but also to better payments reliability, improved efficiency, market growth and boosted cash flow.
To learn more about collecting recurring payments with bank debit check out these ebooks.