Subscription Billing: How to Effectively Process Payments

Businesses have been taking advantage of the subscription billing model for decades. But over the last 15 years, companies have evolved and expanded the way subscription products and services are developed and sold. As a result, the methods used to process this transformative payment model have gone through some changes.

To account for new purchasing habits and capitalize on opportunity, many companies have scaled monthly billing programs with great success. As customers spend money month-over-month, businesses become more aware of concepts like chargebacks, bank regulations, and high risk merchant account processing.

Moreover, in the wake of the Covid-19 pandemic, online subscription boxes are a novel delivery-based concept customers are flocking towards. Unlike the capricious shipping environment for international merchants, opening a box packed with accessories for your favorite new hobby is predictable and reassuring. In turn, businesses are responding to the increased demand by taking advantage of the new market potential.

Start Subscription Billing For Your Business

A man using a laptop on the table

Although subscription billing merchant accounts have certain obstacles, this type of payment model isn’t difficult to implement. Better yet, it can help your company lock-in ongoing revenue and scale up. If your business does not currently offer a subscription service, there are companies that can walk you through the process. Because automated billing works with your merchant account, you’ll want to find a credit card processor with experience setting up a recurring payment model.

Payment Processors for Subscription Billing

Some major payment aggregation companies do not fully support companies with subscription billing models. For example, industries such as adult, travel, or firearms have different challenges that aren’t best suited for a standard merchant account. Therefore, this type of business needs a billing system that is supported by a company who provides caters to unique verticals.

 In order to effectively process payments for recurring billing, you need to make sure that the processor you choose is well established and trusted. They should also have a significant amount of banking relationships in order to create custom solutions to your particular business.

a box full of products and a personalized card

Choosing A Payment Processor

 Finding the best payment processor for your business depends on characteristics inherent to your industry and company structure. Certain factors can change processing fees and volume thresholds. Alternatively, if you sell items in a high risk vertical, there are certain payment processors better suited to open your account.

Here are some questions to consider before seeking out a subscription billing payment processor: 

  • What is your monthly sales volume? If you process more than $100K per month, you’ll have room to negotiate fees and lower your payment processing costs. 
  • How long have you been processing? In comparison, startups or companies with thin files and few months of processing history may have to pay higher premiums.
  • What is the average cost of the items you sell? High ticket items are riskier in terms of how banks view transactions. There is a higher likelihood of fraud in industries like jewelry, pawn, and numismatic collections. 
  • Is your industry regulated? If you sell subscription boxes in an industry like vape, CBD, or nutraceuticals, there are certain restrictions and state-specific regulations you need to follow.

Credit Card Processing For Your Online Business

Overall, subscription billing is a great way to keep customers on-board and grow a sustainable business. If you’re interested in adding this payment model to your company, be sure to anticipate customer expectations. Make sure there is an easy-to-find place on your site where they can cancel their subscription if needed. Moreover, remind customers before they’re billed each month. If they forget or aren’t informed, consider offering them a refund so the conflict doesn’t result in a chargeback. Allowing customers the option to charge a credit card without added work has some risks but if you have methods in place to streamline payments, your subscription billing payment model is sure to show enduring results. 

Banking Compliances

Banks are the major decision maker when it comes to opening or closing your merchant account. As such, they have standardized rules which allow merchants to organize their website and operate within specific guidelines. 

Compliance for banks takes on many forms. Initially, your website may have items or types of products that are outside of their regulations. For example, new CBD startups are limited to ten products on their website for the first 30 days. Moreover, any Certificates of Analysis or COA's must show total THC below 0.30%. These types of requirements are important for banks to monitor the flow and quality of goods from your store.

Customer Service and Reducing Chargebacks

From a marketing standpoint you can look at the role of chargebacks by rethinking the concept of a sales funnel. Most companies picture an inverted triangle, with all their website visitors at the top, and a conversion or purchase taking place at the bottom. What’s detrimental about that is a customer can ask for a refund or file a chargeback which essentially reverses the sale and adds strain on your other departments.

Customer service is the best way to keep the sale long term, and mixed with remarketing, reducing attrition, and keeping customers coming back. If you’re a company with high chargeback rates focusing on how to rework your customer service department, look at what it means in terms of both meeting expectations and communication. Is the customer getting the product they wanted in the time they expected it? If not are their people and resources available to answer questions, address concerns and ultimately reduce the potential for chargebacks long term.

Accepting Recurring Payments

From small, local organizations to large corporations like Dollar Shave Club and Netflix, the recurring payment model is being adopted all over the globe. Unfortunately, it is more difficult to get approval to accept debit and credit card payments with processors such as PayPal, Stripe, and Square.

When you establish your organization with a subscription merchant account, you increase the long-term stability and growth of your businesses. Lastly, look for companies with established partnerships. They have the resources to answer your questions and the customer service expertise to give you the best tips on your new subscription billing payment model.

The Booming Market of Subscription Box Companies

Subscription box companies have seen a huge increase in business in the past years. Consumers continue to flock to the idea of repeat purchases in predictable increments. In turn, companies who sell these ongoing delivery boxes have utilized clever marketing and taken advantage of unique industry pain points to thrive.

Companies like Dollar Shave Club are the premier example of success in this new market. They not only offer a well-packaged, quality product, but their advertising and agent program is one for case studies. They offer discounts and additional incentives to customers who can sign up their friends. This strategy along with clever marketing has allowed them to be one of the most notable companies in the subscription box space.

If you’re interested in opening up a new subscription box company, you should identify a demand in a market that can be capitalized on by offering monthly items. The allure of boxes is that they are stable yet unpredictable. People receive items each month and enjoy unwrapping interesting treasures related to their favorite hobby or modern trend.

Packaging, Shipping, and Fulfillment

In the world that seems to rely on two-day deliveries and rapid order fulfillment, there isn’t much room for a languid supply chain. Before starting an ecommerce company, you’ll need to find out how to package and ship products. If you’re planning on dropshipping, be sure the lead times for your products are within customer expectations. Some companies choose to save money by going overseas to produce their goods. If your products are made to order, or created by large companies like Alibaba, you may face high lead times or risk having incorrect products shipped.

Dropshipping And Knowing Your Manufacturer

Be sure that your customers are receiving the same product they ordered. If your company is hands-off when it comes to fulfilment, you’ll have to trust that your manufacturer is supplying the right product from the beginning. In some cases, if you’re getting a small order from a supplier overseas, they may send a similar product that they have in stock rather than producing a new one.
Besides Subscription Billing, What Makes a Merchant High Risk?

There are a number of reasons why a merchant could be considered high risk. The first is that they’re in an industry that's regulated to some degree. This could mean that there are changing restrictions on federal or state levels regarding the products they sell. Items such as vaping products or nutraceuticals, and ingestibles are regulated by the FDA which means that those types of merchants need to follow stricter guidelines.

Another reason would be brand Association. Aggregate merchant account providers don't want to associate with certain categories that might cause them reputational risk. For example, firearms or the adult dating industry. Large companies can see a lot of backlash from customers that may have different viewpoints about specific types of businesses.

A third reason is related to how they process payments which can cause increased chargebacks. For example, if you are selling jewelry, rare coins, or antiques, these high ticket items are perceived as riskier by banks. We’ll break down a few more of these reasons and look into this question a bit more throughout the presentation.

The Future Of Subscriptions

As more industries realize the benefits of implementing subscription billing, the future of product sales and ongoing marketing will adapt. More and more people seek innovative products and reliability. Combining these standards with a product that customers love and an ongoing payment that keeps merchants steadily moving ahead is the dual benefit of subscription services.