The payments function is at a unique inflection point, under pressure from several influences.
First, business buyers are themselves consumers, and they expect the same quality of payment experience as they see in their consumer lives. That means they want seamless, digital payments.
Second, the COVID-19 pandemic has made paper processes all but impossible. When offices are closed, who is there to cash a check? It has highlighted the unnecessary effect of manual work on already under-resourced payment teams.
And then there is the evolution of the subscription-based business, where payments are not just core to profitability, but a key touchpoint with the customer. In recurring payments businesses, payments are a key part of customer service. Combined, these forces are accelerating digitalization within the payment landscape.
To find out how US business leaders are dealing with these seismic changes, Forrester Consulting surveyed 297 payment decision-makers in US B2B and B2C firms or B2B-only firms. Forrester then released a thought leadership spotlight, called Recurring Payment Friction in the US: Rethink Your Payment Strategy to Save Your Customers and Your Bottom Line. Here are some of its main takeaways.
The pandemic highlighted the need for payments modernization
COVID-19 amplified the urgency to modernize payments, as paper check payments became even more burdensome in the largely remote workforce environment. A majority (70%) of B2B decision-makers are embracing bank debit more than check payments.
But operational challenges continue to hinder progress in the United States payments landscape. Firms processing recurring payments are largely still relying on multiple technologies to do so, such as CRM, billing, and accounting systems.
Almost 85% of survey respondents reported having more than 20 full-time equivalents (FTEs) managing payments. Administrative costs, manual processes, and slow payment intake pose major challenges to streamlining payments. Payment failures plague the bottom line.
Payment failures have major consequences on recurring payment businesses
Payment failures are a common occurrence in the recurring payments world. In fact, half of U.S. survey respondents said that at least 7% of their payments failed in the past year. For B2B exclusive firms, this figure is even higher.
A shrinking bottom line, bad debt, and customer churn are three major consequences of payment failures:
- Shrinking bottom line: When payments fail, profits decrease. A shrinking bottom line limits growth and hinders innovation.
- Bad debt: At a certain point, credit extended to a customer is no longer collectable. This expense is called bad debt. Two-thirds of the surveyed U.S. B2B exclusive payment leaders reported that at least 11% of failed payments result in bad debt.
- Customer churn: Nobody wants to lose customers. But payment failures result in voluntary or involuntary churn, hurting profits.
Recurring payment solutions can mitigate these challenges
Fortunately for firms processing recurring payments, having a carefully planned and modernized payment strategy can mitigate the challenges mentioned above. Payment modernization translates into greater payment success and customer retention, globalization and adherence to compliance, and improved operations and optimization of cost and cash flow.
“Businesses have embraced the subscription model because when the checkout process including the payment itself is frictionless, they gain a predictable cash flow and stronger ties with their buyers. The inverse is true too, however. When the payment process is not handled well, businesses lose customers frustrated by the process, incur losses through unpaid purchases, and have higher expenses trying to remedy unsuccessful transactions,” said Sarah Grotta, Director of Debit and Alternative Products Advisory Service at Mercator Advisory Group.
Firms need to continuously evolve their payment method portfolio to fully reap the benefits of modernization. This means looking for payment technology that has recurring payments in its DNA and choosing payments partners that have global expertise relevant to their unique business needs.
Access the Thought Leadership Spotlight
The Forrester Consulting Thought Leadership Spotlight, commissioned by GoCardless, presents additional findings and statistics on the state of recurring B2B payments and offers insight into the steps firms are taking to improve their payment strategies.
Download the spotlight, Recurring Payment Friction in the US: Rethink Your Payment Strategy to Save Your Customers and Your Bottom Line, by filling out the form below.