As a Software as a Service (SaaS) business, you have unique needs that aren’t necessarily met by a one-size fits all payment processing provider.
In order to limit customer churn and fuel growth, you need to optimize your subscription model by partnering with a SaaS payments solution that understands the intricacies of recurring billing and tiered payment plans.
But how exactly do SaaS payments work? How can you best manage them to ensure success? And how can you pick the right SaaS payment processor for your needs?
In this article, we explain everything SaaS businesses need to know.
Generally speaking, SaaS payments are charged by subscription businesses on a recurring basis in exchange for access to a service. SaaS platforms provide the tools that businesses need to manage recurring billing and customer subscriptions.
They do this by relaying payment information to the customer’s issuing bank and the platform’s acquiring bank in order to facilitate the transfer of funds on an agreed timeframe.
SaaS platforms need to have the flexibility to take recurring payments on a variety of schedules. This could be weekly or monthly, or an annual upfront payment for a year of access.
Annual subscriptions are usually available for a lower cost because the upfront payment guarantees the business a year’s worth of revenue, which is more reliable than a monthly subscription that could be canceled at any time. It’s common for annual plans to automatically renew on their anniversary unless the customer requests otherwise.
Whatever the installment schedule, the key elements of SaaS payment processing are:
SaaS businesses have options when it comes to managing their payments. They can choose to work with a payment service provider (PSP) that allows them to process subscription-based or they can opt to become a payment facilitator (PayFac) themselves.
PayFacs are third-party merchant services providers that facilitate electronic payment processing. To become a PayFac, SaaS companies need to partner with an acquiring bank, integrate payment gateways and other service providers, and ensure compliance with any relevant regulations.
Managing these relationships can be time-consuming, but it does give you much more control over the payment process and the user experience, allowing you to customize your subscription solution to your needs.
The alternative option is to work with a SaaS payment service provider. An integrated SaaS payment solution can manage your subscriptions, recurring billing, customer data and more for you. This makes it easy to scale your business, and to focus on developing a great offering for your customers.
SaaS payment providers can usually integrate with your existing infrastructure through an open API, ensuring seamless flow between your different business functions. They also offer in-built security, compliance, and data and reporting.
Choosing the right payment methods is essential to securing the success of your SaaS business.
You need reliable, trusted options that are used by your customers and that support recurring billing so you can keep your churn rate low. Involuntary churn, where a customer’s payment fails and their subscription is canceled due to an error, is a major problem for SaaS businesses, and one of the main factors to consider when choosing a payment method.
Here are our top tips for optimizing your SaaS payment processing:
Automatic account updates take the hassle out of maintaining current customer details for subscription payments. Account updates are usually programs offered by credit card companies that automatically update cardholder information if it changes. This cuts the risk of involuntary churn and significantly reduces the administrative burden of subscription management.
Checkout.com’s new real-time account updater is perfect for SaaS businesses to maintain accurate cardholder information.
Many payment processing solutions or payment gateways offer smart retry features, which can automatically reattempt a failed payment a set number of times and within a specific time frame. You can often define your own rules for retry attempts, depending on your preferences. Smart retries can save you a lot of time and effort spent chasing customer payments.
As we mentioned above, offering popular local and global payment methods is a great way to optimize your SaaS payment processing because it allows potential subscribers to choose their preferred method for recurring billing. This maximizes the chance of repeat successful payments and gives you access to a global customer base.
Reconciliation, where your company compares internal records of financial transactions with external records, such as a bank statement, is an essential but time-consuming part of the accounting process. If you have a large number of subscribers, reconciliation can be a costly administrative burden.
Automated payment reconciliation takes the hassle out of the process by automatically collating and comparing multiple data sources and flagging any discrepancies. This allows you to focus on the more important task of building your brand and growing your subscriber base.
As a SaaS business, your churn rate should be one of your main success metrics. But it’s no good just tracking churn rate: you need to put in place procedures to flag changes and optimize your payment processing to defend against churn.
That starts with data. Ensure you have robust data and reporting tools so you can monitor for changes in churn rate and respond quickly when they happen. You should also invest in payment technology that maximizes the chances of authorizing payments, and get to grips with response codes, so you can take the best course of action if a customer’s subscription payment fails.
Finally, use dunning management, a payment recovery process that both notifies your customer via SMS or email if their payment fails and retries the payment a set number of times.
Here are the key things to consider when choosing a SaaS payment processor:
Checkout.com offers support for SaaS payment processing via our subscription solution.
Our payments platform provides a suite of integrations that make it easy to manage, update, or cancel subscriptions as and when you need, and to take recurring payments via a range of popular methods.
With our customizable APIs, you can optimize your payment processing solution to your exact requirements. Our Unified Payments API allows you to unlock global reach, with access to dozens of preferred local payment methods, local processing, and granular country and payments data. And you can use our reconciliation API to automate the tedious but necessary task of payment reconciliation.
Find out more about how our subscription solution could help your SaaS business succeed.