Processing Recurring Payments

Recurring payments help simplify the process of billing a cardholder for a product or a service that is being provided on a continuous basis. A recurring payment plan exists when multiple transactions are processed at predetermined intervals, as a result of an agreement for the purchase of products or services. A cardholder authorizes a merchant to charge his or her payment card on a regular basis (usually monthly, but it can be at other intervals) for a period of time, however the interval between any two consecutive transactions cannot exceed one year. The transaction amount can be fixed or it can vary. The recurring payment plan is in effect until canceled by the consumer. A good example is a newspaper subscription where a consumer can be making payments indefinitely, until the subscription is canceled. A recurring plan differs from an installment payment plan in that in the latter you have a fixed amount to be paid and the installments are agreed upon in advance and made until paid in full.

The main benefit that merchants get from a recurring payment plan is that it reduces costs, associated with the processing of a single payment. Recurring payments also help increase customer loyalty, increase efficiency and improve the cash flow by ensuring timely and regular payments.

To ensure managing recurrent billing in an effective manner, merchants should incorporate into their procedures the following practices:

• Allow customers to choose the billing date. They know best when the money will be available.
• Inform the cardholder the name that will be presented. Ensure that the "Doing Business As" name, or some other name, easily recognized by the cardholder, is used when billing or corresponding with the cardholder. Your merchant processing provider will be able to set your billing descriptor to show the desired name.
• Provide a clear statement of the cancellation policy on the cardholder's agreement and your website. This will help minimize chargebacks.
• Provide the cardholder with clear information regarding the billing arrangements, all charges related to the delivery of products and services.
• Ensure that billing is discontinued immediately upon the cardholder fulfilling the cancellation terms - provide the cardholder with cancellation confirmation including when the last billing will occur if this has not already occurred, or if a credit is due when the credit will be processed.
• Ensure that the cardholder is notified when goods or services cannot be delivered or provided on the agreed upon date.
• Provide the cardholder with an easily accessible contact number for customer service inquiries, and also the right to terminate the recurring transaction.
• Ensure an authorization request is made and approval is obtained before a payment is submitted for clearing.
• Make sure that all transactions reflect the Recurring Payment Indicator.
• Contact the cardholder to obtain alternative account billing details if the authorization response is a decline.

Provide a Merchant Pre-Billing Notification prior to submitting an authorization request for a recurring transaction and you will see less customer disputes and chargebacks.

This type of a payment plan offers many advantages to both the merchant and his customers and these advantages have been discussed previously in this blog. There are, however, certain characteristics, inherent in every recurring payment plan, that make them particularly vulnerable to customer disputes and chargebacks. Implementing the following recommendations will help minimize such problems:

• First Payments in a Recurring Plan. The first payment of a recurring plan should be processed just as every other eCommerce or MO / TO card processing transaction. You should always use AVS and the Card Security Verification codes. For Visa and MasterCard transactions it is advisable that you also utilize Verified by Visa and MasterCard SecureCode. The sales receipt of the first recurring payment should include the following information:
  
  • The words "recurring transaction."
  • The frequency of the charges.
  • The period of time that the cardholder has agreed to making payments (if applicable).
• All Recurring Payments. To best protect themselves against customer disputes and chargebacks, merchants should:
  
  • Always use the Address Verification Services (AVS). Only process transactions for which you receive a positive match.
  • Keep a file with your customers' card expiration dates and include them in all authorization requests.
  • Identify recurring transactions as such. This identification will typically be handled by your merchant account service provider but you should make sure that it is set up properly.
  • Always notify your customers before each recurring charge. Provide the notice at least ten days in advance. In the notice you should include the amount and date on which it will be charged.
  • Create adequate controls to protect stored cardholder data.
  • Never store Card Security Verification codes - the 3- or 4-digit numbers on the back or front of all credit cards.
  • Check for customer complaints and respond promptly. Adequately addressed complaint will help resolve the issue before it deteriorates to a chargeback.