Why Do SaaS Payments Fail and What Should Companies Do About It?

One thing SaaS companies always face is issues with payment failures and transaction roadblocks. Industry leaders say that customers will be disappointed when their payments don’t go through for certain services, subscriptions, or installments. 

If that happens, the SaaS company will lose revenue and brand trust. As a result, failed payments can eventually lead to cash flow issues. Forbes reports that cash flow problems, technical debt, and inadequate user experience lead SaaS businesses to fail.

At the same time, issues with transactions lead to a high churn rate. That means your clients will stop doing business with you. Do you want to stop this issue? 

In this blog post, we’ll discuss the reasons for SaaS payment failures, how to reduce them, and more.

7 Reasons SaaS Payments Fail

A payment decline happens when financial transactions cannot be processed using various payment methods. These failed payments can lead to business losses for your SaaS company. 

On average, avoidable failed payments can lead to fifty percent of subscription churn. Similarly, false declines can result in over USD four hundred billion in lost revenue.

According to PayPro Global, when SaaS companies are selling to hundreds of clients, they are more likely to face payment failures due to credit card declines. 

To address these failures, you must first understand why they happen. These include the following:

• Card-Not-Present (CNP)
• Inefficient currency conversion
• Lack of funds in the client’s accounts
• Compliance issues
• Missing or invalid payment information
• Suspicious activity on the payment model
• Bad merchant account configurations

These can either lead to a soft or a hard decline. The former happens when the bank rejects a transaction because of technical issues, suspected fraud, or user-related problems. However, the latter occurs due to low credit, lost cards, insufficient funds, etc. 

3 Ways You Can Reduce Payment Declines in Your SaaS Brand

A PR Newswire report suggests that seventy percent of financial corporations and other institutions have become frustrated with the payment failure rates. While there are multiple reasons payments fail, you can simply follow these tips to avoid such instances:

#1. Offer Multiple Modes of Payment

SaaS companies must offer a wide range of payment methods to their customers. These include direct debit, digital wallets, credit cards, etc. Doing so will help you accommodate client preferences and reduce transaction decline risks. 

Your company won’t be affected if the consumer faces payment method limitations or has a lack of funds in one account. They can simply change the payment method and complete the transaction. 

Sometimes, certain payment models face technical issues that can hamper your revenue collection. That’s why it’s best to have multiple methods. 

#2. Ensure Card Validation

In some cases, your SaaS business might face payment challenges due to invalid information. The International Society of Horticultural Science reports that online credit card transactions fail due to the input of the wrong card number or expiration date. 

SaaS brands need to implement a robust data validation system. Doing so ensures the customer’s payment details are updated and accurate. Your company can regularly validate the information to prevent declines due to expired cards or incorrect data.

#3. Payment Retries

At least forty-four percent of customers will give up a purchase if they experience a payment decline. 

Thankfully, payment retries allow SaaS organizations to automatically gain revenue from declined online transactions. For example, this retrying feature can either be immediately after the payment failure or at a set time.

Your billing systems should indeed have a built-in ‘retry payment’ interface to recover the lost transaction. However, excessive retries can flag your payment process as fraudulent, leading to additional fees. 

Some credit card providers have also highlighted the number of ‘allowed’ transaction retries. That’s why you must avoid having multiple retry loops. 

The Role of Merchant of Record (MoR) Software 

According to Statista, the SaaS market is expected to have a CAGR of more than nineteen percent between 2024 and 2029. That’s because it’ll go from USD three hundred and thirty-nine billion to USD eight hundred and eighteen during the forecast period. With such a massive opportunity, it’s best to adopt innovations to deal with the demands. 

A reputed MoR software can be the answer to your SaaS payment declines. This tool will help avoid revenue leaks because of the extensive resources present.

MoRs can create a synergistic bond between the customers, the payment tool, and your SaaS company. It has features like billing, local acquiring, international currencies, alternative payment methods, compliance with industry standards, etc. The software also comes with smart routing, dunning management, and a cascading system.

All these will help you reduce transaction failures through a scalable and full-function approach. MoR systems can also offload various operational burdens and optimize the payment processes in your SaaS organization.

Payment failures can indeed hurt your SaaS company. Most industry leaders are having trouble offering value to customers due to this, leading to a high churn rate. Eventually, failed transactions can lead to stagnant revenue growth. For instance, the customer acquisition cost (CAC) can become high. 

These can happen due to a lack of funds, compliance problems, and more. Thankfully, you can use the right software to solve them. MoRs can help offer card validation, multiple payment modes, etc.

In doing so, you won’t lose customers and strategically battle payment declines.