Best Practices When Processing Recurring Payments

Blog Image - Recurring Payments Best Practices

Nothing makes a merchant’s day like a customer signing up for a subscription service with recurring payments. Even the most loyal of your one-off customers have to be coaxed back to make more purchases with new products, sales, and special promotions. So what's the big draw?

Subscribers are agreeing to pay you money on a regular, ongoing schedule.

If you want a reliable, consistent revenue stream that doesn’t require constant attention from your sales and marketing teams, it’s hard to do better than offering subscriptions with recurring payments.

Subscription Models - What's the catch?

The promise of steady, predictable income is complicated by the fact that consumers’ feelings about their subscriptions may change over time, and when they decide that they want their subscription to end, they sometimes decide that they would have liked it to have ended a long time ago—and they enlist their banks to help them get back what they’ve paid.

Some customers forget what they signed up for. Others decide that they don’t really want the subscription content after all, once they’ve received it. And there are customers who will be perfectly satisfied, but don’t want to bother with following the merchant’s procedures for canceling a subscription. All of these situations often lead to chargebacks.

Handling Recurring Payments the Right Way

The way recurring payments are processed, how you communicate with your customers about them, and the policies you establish around them can all contribute heavily toward whether your subscriptions are a predictable passive income stream or a source of customer service issues, headaches, and chargebacks.

To avoid complaints, chargebacks, and other problems with your recurring payment billings, we recommend adhering to these best practices.

1. Don't mislead customers!

Sounds obvious, but we see it all the time.

As tempting as it can be to entice hesitant customers in with a subscription offer that doesn’t really look like a subscription offer, one of the most important things you can do is make sure cardholders are aware of your transaction terms prior to processing their initial order. Customers are justifiably angry when a purchase that they believed was a one-time transaction turns into a recurring monthly billing.

Fight & Recover Chargebacks - Get The GuideIt’s true that when you’re completely transparent about your terms, you may turn off some customers who don’t want to commit to a long-term subscription. That’s for the best. Find other ways to win them over, and be certain that your subscribers really want to be subscribers.

2. Use a fraud tool, for all our sakes.

There’s no excuse for neglecting to take the basic steps needed to weed out obvious cases of online fraud and card theft. You should configure your payment processor to only accept credit card transactions with AVS and CVV matching. This won’t stop every fraudster, but it will stop the ones who are going after low-hanging fruit.

Many merchants run into problems when cards are declined and they keep trying to run them. This can create situations where invalid transactions are processed, leading to chargebacks that the merchant has no standing to contest.

Do not process a credit card more than once if it returns a “Fraudulent” reason code.

The safer option is to ask the cardholder to contact their issuing bank and whitelist your transaction. You must be very careful around transactions with fraud indicators, as you may not be able to fight the chargebacks that result from them.

3. Activate "Account Updater" feature!

A frequent issue with recurring payments is that the card on file will end up expiring or getting canceled, and customers forget to provide new payment credentials to the services they’ve subscribed to. The credit card companies have created a helpful workaround for this situation, the card updater (or account updater—terminology varies) feature.

Use the card updater feature when you face “Invalid Card” reason codes.

It will automatically connect to the issuing bank to obtain up-to-date payment credentials. If you don’t have this feature activated yet, talk to your gateway provider.

Merchants who receive “soft” declines may be tempted to try rerunning the card on the chance that a typo, glitch, or some other temporary error was the cause. Where this is allowed by your payment processor and the card networks, there’s no harm in doing so, but make sure you understand exactly when and how often you are allowed to re-run a declined card. As a general rule, do not attempt to process a declined card more than four times when you’re getting non-fraud reason codes.

Note that Mastercard has some rules that differ from Visa’s and other card networks. You are not allowed to process certain Mastercard transactions more than once. Be sure to familiarize yourself with the policies, decline codes, and permissible actions for Mastercard and any other card brands you accept.

Mastercard Mandates eBook

Remember to communicate clearly and as often as necessary with your customers after they’ve made their initial transaction. Many card networks require notification of recurring billing charges before you process them. Even if doing so it not mandated for you, any information you can give your customers about what they’re about to be charged, how much, and why, will help you avoid confusion and disputes.

People forget about their subscriptions all the time. Reminder emails can prevent frantic phone calls to banks and keep subscriptions active longer, and even if that’s not the case, a canceled subscription is better than a chargeback.


While subscriptions and recurring payment plans may present more challenges than ordinary one-off purchases, merchants shouldn’t be afraid of them! Well-managed subscription plans can be an excellent way to give customers what they want, maintain their interest and loyalty, and create a consistent and dependable source of ongoing revenue.

For companies that sell digital services, consumable goods, or media, subscriptions may be the most viable way to deliver their products to their customers. For companies in these markets, shutting down subscriptions over chargebacks and customer service issues isn’t even an option. These companies have no choice but to adjust their policies and business operations until their subscriptions are no longer causing problems.

That said, even the most ethical and well-run companies can find themselves targeted by excessive chargebacks, especially in certain industries that—for whatever reason—attract fraudsters and dishonest customers. For those chargebacks that can’t be prevented despite your best efforts, remember that merchants can and should fight back against illegitimate chargebacks, and when you do it right, you can expect to win.

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