How to Create an Effective SaaS Dunning Strategy

To avoid passive or unintentional churn, which occurs when a subscription is ended due to a payment issue, you need an effective SaaS dunning strategy. Payment failures stemming from expired cards, insufficient funds, or processing errors are observed to correlate with a reduction of up to 10% of Annual Recurring Revenue (ARR) in several subscription businesses across time.

This resource examines systematic methods for SaaS collection management and offers tools related to cash flow and a potential recovery rate of around 85%.

The most cost-effective step in the SaaS dunning process is to address payment issues before the date of billing, reducing the number of transactions that are lost in the process. This is achieved by using technology to update card details and having appropriate pre-dunning communication. 

Kaart Updater, a service providing updated card details from Visa and Mastercard, has been observed to influence involuntary churn stemming from expired cards. An email or in-app notification sent 30 to 45 days before a card’s expiration provides an opportunity for the customer to update their payment information, possibly mitigating the occurrence of payment declines.

• Automated Card Updater Services: Implementation of this feature is advised promptly. When the customer’s card has expired or been replaced (for example, because of loss or theft), the system updates the card details with no need for the customer’s intervention. Industry estimates suggest that these services are associated with a 30-50% decrease in hard declines.
• Pre-Dunning Notifications: Track cards expected to expire within 30 and 60 days. This could be an occasion to take steps to address potential payment problems in the future. Send an email or in-app message in time to increase the chances of keeping the customer aware that their card is about to expire.

The very first step in creating a SaaS dunning strategy is to divide customers according to Lifetime Value (LTV) and reason for churn. Employing a one-size-fits-all approach can lack efficiency and may have a negative impact on customer satisfaction.

The quickest way to recover payments due to credit card failures is through an effective retrial policy that does not require any more effort by the customer.  This is known as “Invisible recovery” and involves solving the problem with the help of technology.

Slimme nieuwe pogingen rely on algorithms and machine learning (ML) to analyze the specific reason code and the issuing bank’s behavior, and then decide on the best time to retry the transaction. Optimized timing has been associated with a decrease in soft declines, with observations suggesting a potential reduction of over 20% compared to standard static retries. This is confirmed by the fact that dynamic retries increase the number of recovered purchases by 7.8% (a 36% relative increase) as opposed to static retries.

Analyseer weigeringscodes: Different decline codes require different types of actions. A Code 51 (Insufficient Funds) is what is called a soft decline, and should be retried a few days later (e.g., coinciding with a typical payday), while a Code 14 (Invalid Card Number) indicates a hard decline and should activate an immediate communication to the customer.

Customize the Retry Schedule: The system can be configured to continue attempts after three failures. Extend the recovery window to maximize your chance of success for temporary declines.

Direct communication is an option when automated retries are not successful. Effective dunning emails should be clear, avoid all unnecessary inconveniences, and be polite but urgent. The open rate for a dunning email is between 25% and 41%, which shows that the content and the time are important.  

Successful dunning emails should have a distinct secure link to the payment processing page.  This way, the card processing task is kept simple, easy to complete for the customer, avoiding the typical problem of making the customer log in and search for various pages or applications to make the payment.

• Sender Address: Send the email from a real person, such as “Billing at [Your Company Name]”, or the name of a founder, for example, as shown that emails sent from an individual achieve an average increase in open rates of 15% as compared to generic emails like “billing@…” or “no-reply.”
• Subject Line Best Practices: Use clear and precise language that conveys the urgency of the situation. Do not use flowery language.

The account is typically transitioned to a suspended service status after the automated dunning cycle is finished (for example, 7 days of retries and emails). Whether a SaaS dunning management system allows pausing instead of canceling access relates to its performance relative to other systems. 

The psychological impact of reactivating a paused account differs from that of re-subscribing to a canceled account. By the act of pausing the account, the customer’s information, settings, and profile are maintained, indicating the value of the customer, who was just experiencing a temporary problem. This will enhance the chance of successful re-engagement in the future.

• Action at Cut-Off (Day 8): Discontinue service access while setting the account status to “Paused” or “Delinquent (Grace Period)”. Send an email to conclude the pause, informing the customer about the status and the security of their information. This feature is often provided by abonnementsbeheer software.
• Final Hard Cancellation: Hard cancellation, defined as the removal of all customer information, is an option that could be explored after a pause of 30, 60, or 90 days, subsequent to attempting to reconnect with the customer (check Step 2).

Expansion into new territories by SaaS founders involves tax, compliance, and localized payment recovery complexities (e.g., SEPA Direct Debit mandates, local bank protocols) that may affect revenue outcomes. One of the solutions to this problem is to integrate a specialized payment solution, as a Merchant of Record (MoR), which will allow you to transfer the burden of performing these operations to the payment processor.

Een Merchant of Record (MoR) is the party responsible for the completion of a sales transaction; this includes payments, calculation, collection & remittance of the sales taxes (VAT/GST/PST, etc etc), compliance with local payment laws, the management of currency exchanges and subscriptions, in some cases also the processing of chargebacks, fraud prevention, license delivery. An MoR presents the possibility of adapting your SaaS dunning process internationally without requiring in-house regulatory knowledge.

• Local Payment acceptance: An MoR enables processing payments in the local currency and using lokale betaalmethoden in the target market, which may reduce the frequency of card declines often linked to issuing bank policies. Also an MoR may already have entities set up in other countries, which makes them local to a specific market. 
• Chargebackbeheer: The initiation of chargebacks is possible in several situations, often related to billing issues or customers’ lack of clarity. Having an MoR manage dispute resolution involves assuming responsibility for the process and reducing chargeback handling for your payment processor account.