Why Subscription Payments Fail: Top 25 Reasons and How to Fix Them

June 10, 2024

Discover the top 25 reasons why subscription payments fail, how to recover those payments, and how to stop involuntary churn in your membership or subscription-based business.

Written By: Casey Graham | Gravy Co-Founder & CEO‍

June 10, 2024

Ever wondered why a subscription payment fails?

In a world where transactions happen in an instant, payment failures are still a common headache for businesses and customers.

Here, we go into the top 25 reasons why subscription payments fail, how to recover those payments, and how to stop involuntary churn in your membership or subscription-based business.

Voluntary vs. involuntary churn

In the world of subscription businesses, customer churn (the rate at which customers stop doing business with you) is a major growth barrier. Churn is usually broken down into two types: voluntary and involuntary.

Voluntary churn:

Voluntary churn is when customers consciously decide to cancel. This can be for many reasons such as dissatisfaction with the service, better competition, or a change in the customer’s needs or financial situation. Voluntary churn is fixed by improving the customer experience, offering competitive services, and maintaining communication to ensure customer needs and expectations are met.

Involuntary churn:

Involuntary churn is when the cancellation wasn’t initiated by the customer. Often this type of churn is related to payment fails such as expired credit cards, failed payment transactions or banking issues. Unlike voluntary churn, customers affected by involuntary churn may not even be aware there’s a problem until services are interrupted.

Types of credit card payment failures

Failed payments can be divided into two categories:

Soft declines: The issuing bank approves the payment, but a problem occurs later in the transaction process. Payments in this category fail due to temporary issues such as insufficient funds, faulty internet connection, or incorrect payment details and can be fixed with specific strategies.

Hard declines: The payment is outright rejected by the issuing bank.

Each type of decline requires a specific fix. Let’s explore the common reasons and how to address them.

Top 25 reasons for credit card declines

1. Misconfigured payment gateway

Issue: Payment gateway is not set up correctly.
Solution: Review gateway settings regularly and update as needed.

2. Transaction not allowed

Issue: Customer’s bank declines the transaction.
Solution: Ask customer to contact their bank or try another payment method

3. Blocked by merchant account

Issue: Merchant account settings block the transaction.
Solution: Check your merchant account settings to ensure it allows all transaction types.

4. Deactivated additional user

Issue: Primary cardholder has deactivated a secondary user.
Solution: Tell customer to check with the primary account holder.

5. Expired card

Issue: Credit card has expired.
Solution: Send an automatic reminder to customers to update their card details.

6. Maxed out credit

Issue: Customer has reached credit limit.
Solution: Tell customer to monitor their credit availability.

7. Fraud alert

Issue: Bank flags the transaction as suspicious.
Solution: Tell customer to verify the transaction to lift the alert.

8. Canceled card

Issue: Issuing bank has canceled the card.
Solution: Customer should contact their bank for more info.

9. Account flagged for fraud

Issue: Unusual spending patterns detected.
Solution: Customer should confirm their identity with the bank to clear the flag.

10. Incorrectly entered information

Issue: Entry errors during payment submission.
Solution: Use form validation to catch errors before submission.

11. Payment instrument not supported

Issue: Payment method is not supported by the gateway.
Solution: Offer multiple payment options and clearly state supported payment methods on your payment page.

12. Account has been closed

Issue: Issuer has closed the credit card account without notice.
Solution: Tell customer to contact their card issuer for more info and alternative arrangements.

13. Payment is past due

Issue: Customer’s account is overdue and new charges are blocked.
Solution: Send timely billing reminders to prevent overdue accounts.

14. Insufficient funds

Issue: Linked bank account has no funds.
Solution: Tell customer to monitor their account balance and set up low balance alerts.

15. Payment collection failed

Issue: Fraud filters trigger a decline.
Solution: Optimize fraud filters to balance security and approval rates, reducing false positives.

16. Account is suspended

Issue: Missed payments have caused the account to be suspended.
Solution: Offer payment plans to help customers get current.

17. Processor declined

Issue: Bank processor declined the transaction without reason.
Solution: Tell customer to contact their bank for more info.

18. Card reported lost/stolen

Issue: Card in use was reported lost or stolen.
Solution: Tell user to delete old payment methods and add a new one now.

19. Purchase made while traveling

Issue: Location-based transaction flags.
Solution: Use address verification service (AVS) and tell user to confirm details.

20. Invalid address

Issue: Billing address mismatch.
Solution: Utilize address verification service (AVS) checks and prompt users to confirm their details.

21. Invalid credit card number

Issue: Customer enters a non-existent card number.
Solution: Validate credit card numbers in real-time on your payment form.

22. Card terms have changed

Issue: Cardholder agreement changes affect transaction approval.
Solution: Customer should be aware of any changes from their card issuer.

23. Credit card type isn’t accepted

Issue: Certain card networks are not accepted.
Solution: Clearly state accepted card types and consider adding more payment options.

24. Credit limit has been maxed out

Issue: Customer has exceeded credit limit.
Solution: Tell customer to monitor their credit limit or contact their issuer to increase it.

25. Transaction blocked

Issue: Generic decline with no reason.
Solution: Customer should follow up with their bank to find out the exact issue and fix it.

How to fix failed payments

Knowing the reasons for credit card payment failures is the first step to fixing them, but it’s not just about knowing—it’s about preventing them from happening in the first place. Preventing them can reduce payment fails, saving you time.

Subscription-based businesses need to get ahead of these issues to keep their customers up and running.

Realistically, you’ll never be able to eliminate declined credit cards. However, if you plan ahead and have a system in place when payments fail, you can recover your failed payments, retain your customers, and increase their lifetime value.

Want Our Guide to Mastering Revenue Recovery?

With our Failed Payment Recovery Guide you’ll get…

Best Practices for Dunning: Learn the art of crafting persuasive dunning messages that encourage customers to act without feeling pressured.
Customer Retention Tactics: Techniques to approach failed payments in a way that maintains customer trust and loyalty.
Template Examples: Access to customizable email templates that have been tested and proven to improve recovery rates.
Technology Tips: Insights on leveraging technology to automate the recovery process and enhance efficiency.

Our Failed Payment Recovery Guide is the easiest and most effective way for course creators, service-based businesses, SaaS, subscription boxes, and nonprofits to put money back in their pockets.

What is Failed Payment Recovery?

Failed payment recovery is a process used by businesses to handle and fix failed transactions. Promptly handling payment failures is key to recovery. This is especially important in subscription-based models, where recurring payments are the lifeblood of the business.

Solid recovery efforts prevent lost revenue and ensure customer retention and happiness.

Understanding the importance of revenue recovery

Every failed transaction represents potential revenue loss and could disrupt the customer relationship. Minimizing payment fails is critical to a steady revenue stream. The goal is to minimize these disruptions and ensure a stable revenue flow by addressing the failures promptly and efficiently.

This involves finding out why the payment failed, contacting the affected customer to fix the issue, and preventing it from happening again.

Components of failed payment recovery

1. Detection and Notification: The first step in the payment recovery process is detecting the failed payment, which is typically flagged by the payment gateway or processor. Immediate detection of payment fails allows for swift action to be taken. Automated systems can alert both the business and the customer of the failure through emails or SMS, providing quick information on the next steps.

2. Analysis: Once detected, it’s essential to analyze the reason behind the failure. Common reasons include expired credit cards, insufficient funds, or bank declines due to suspected fraud. Understanding why a payment failed is crucial for addressing the specific problem at hand.

3. Customer Communication: It is vital to communicate effectively with customers following a failed payment. Communication should be friendly and helpful, with clear instructions on how to fix the issue. Transparency about the problem helps build trust and motivates the customer to take action to fix it.

4. Resolution: The fix might involve updating payment info, resolving account limits, or clearing up bank misunderstandings. Providing multiple ways for customers to update their payment details can speed up this process.

5. Prevention: Part of the payment recovery process is taking steps to prevent future issues. This could involve setting up account updaters that automatically refresh credit card information or offering customers early warnings before their cards expire.

6. Follow-Up: After fixing the issue follow up with the customer to confirm it’s fixed and to re-establish a positive customer experience. This step is key to customer retention and can turn a negative experience into a positive one that strengthens loyalty.

Benefits of effective payment recovery

Increased Revenue: Recovery directly impacts the bottom line by adding revenue that would have otherwise been lost.

Improved Customer Retention: A smooth recovery process leads to customer satisfaction and loyalty, which in turn leads to satisfied customers who are more likely to stick with you.

Enhanced Reputation: Efficient handling of payment issues boosts the business’s reputation as reliable and customer-focused.

Types of failed payment recovery

Successful recovery involves employing a variety of strategies tailored to the nature of your business and your customer relationships. These strategies can effectively address payment fails. While traditional methods like dunning have been commonly used, more innovative and customer-friendly strategies are proving to be more effective.

Here’s a look at the different approaches:

1. Automated Retry Logic

This involves setting up algorithms within your payment system to retry the charge at optimal times. This is good for temporary issues like bank downtime or limits being exceeded. Automating retries at strategic intervals allows you to recover payments without any customer friction, unlike dunning, which can be seen as nagging.

2. Account Updater Services

A more frictionless and customer-friendly approach than dunning, account updater services refresh outdated card info. This service allows payment processing to continue without the customer having to do anything, reducing friction and customer experience.

3. Payment Method Alternatives

Providing customers with alternatives immediately can increase recovery chances when the primary payment method fails. Options like digital wallets, new credit card details, or direct bank transfers are customer-friendly and increase recovery rates without the negative connotations of dunning.

4. Incentives for Prompt Payment

Offering incentives to update payment info or pay outstanding payments can be positive engagement, a far cry from the often hated dunning process. Whether it’s a discount or a bonus, service incentives show goodwill and can get customers to act quickly and positively.

5. Dunning Management (The Traditional Approach)

Traditionally, businesses have used dunning to recover payments. This involves sending automated notifications to customers to tell them their payment has failed.

But this method is no longer effective and can even damage customer relationships. Studies and industry reports say dunning only recovers around 15% of total billing fails.

Key drawbacks of dunning:

Ignored Automation: Customers ignore automated dunning emails as spam or ignore them because of the many automated messages they get daily.
Lack of Empathy: Dunning messages don’t address the customer’s situation or the reason behind the payment issue, so there is no empathy and care.
Inability to Problem Solve: Automated dunning systems can’t solve payment problems proactively. They just notify the customer of the problem without providing a solution.

The consequences of using dunning are serious. Not only does it recover very little of the failed payments, but it can also alienate customers more than the failed payments themselves.

For more on the inefficiencies and harms of dunning software, read this blog post on why dunning is leaving too much money on the table and how it can even hurt your customer relationships and brand reputation.

6. Personalized Outreach (The Gravy Way)

At Gravy, we’ve moved away from traditional, impersonal methods of payment recovery, like dunning, which relies heavily on automation.

Instead, we pride ourselves on our uniquely human approach—The Five Workflows of Revenue Recovery™. This isn’t just about recovering payments. It’s about maintaining and growing customer relationships.

Our human-centric approach

Here at Gravy, we know payment issues need to be addressed quickly. That’s why our U.S.-based team reaches out to your customers within hours of receiving a failed payment. Gravy’s approach addresses payment fails through personalized outreach and problem-solving.

We’re here to update billing info, solve problems, and ensure that every interaction is on brand. This personal touch not only recovers lost revenue, but also builds trust and loyalty with your customers.

Real People Solving Real Problems

While we use the latest technology to automate and track our recovery efforts, the real magic happens through human connections. Our people lead the way, armed with empathy and knowledge of your business, so every recovery interaction is personal and effective.

Our Track Record Speaks for Itself

The numbers don’t lie. Amy Porterfield, CEO of Amyporterfield.com, saw her recovery rate go from 33% to 79% with Gravy. Our personal approach increases efficiency and builds loyalty, as seen in the testimonials of Lindsey Comeau of Sunday and David Carlisle of Amwaste. They love our tailored, thoughtful communication that feels natural and respectful.

Beyond a Service Provider

What sets Gravy apart is our commitment to being part of your team. Gravy provides stability and familiarity, unlike other services, where you might have a different point of contact every time you call. We become your dedicated revenue recovery department, an extension of your company you can count on day in and day out.

It’s All About People

At the end of every transaction, there’s a person. We know this, so we make sure our conversations are warm and friendly. We’re not just recovering payments. We’re building bridges and growing relationships with your customers.

How Much Are Failed Payments Costing You? Let’s Find Out—and Then Let’s Fix It.

Interested in the impact of failed payments on your revenue? It’s time to uncover the hidden costs and opportunities with a Gravy specialist who can turn your losses into gains. In just a 30-minute demo, here’s what we’ll cover:

Measure Your Actual Failure Rate: We’ll review your transactions to see how often your payments are failing.
Spot Immediate Recovery Opportunities: We’ll show you the “low-hanging fruit” where small changes can mean big returns.
Calculate Your Potential Gains: Find out how much “free money” you’re leaving on the table each month due to unresolved failed payments.
Recommend Strategic Actions: We’ll provide customized recommendations to improve your billing recovery process.

Stop the Leak and Start Recovering More Revenue!

Note: This isn’t a sales call. We believe in making informed recommendations, so we won’t make any recommendations until we fully understand your current challenges and potential gains.