Software as a service (SaaS) businesses are experiencing tremendous growth and more and more old school companies are trying to reinvent themselves and their business models in SaaS businesses. What’s not to love, SaaS businesses incorporate a recurring revenue model that lock-in future cash flows over a certain period resulting in ample liquidity and showcasing customer loyalty. It is no wonder that such businesses are often lucratively valued by investors with capital raises often oversubscribed.
Another benefit is setting up recurring payments so that SaaS companies no longer use paper invoices, worry about payment reminders, or follow-up for collections. However, SaaS vendors do have to be selective about their merchant account and be proactive about certain best practices. Since there are many pitfalls and challenges for customer payment processing for SaaS companies, we decided to delve into these challenges further and how to best handle them.
For SaaS companies, one of the biggest metrics of their growth trajectory is their retention rate. Recurring revenue is a great feature, but if the business is unable to retain the customers paying those recurring fees, it will be sustainable for long. Hence, its vital that the user experience is front and center at all times and have a pulse on customer feedback regarding practicality and convenience.
Challenges such as too many steps to get to the payments section or a litany of menu options that can confuse the may add too much friction to something as important as getting paid. The subscription model of payment employed by SaaS companies differentiates the user experience from traditional eCommerce sites. This payment option works as it requires the storing of card details after the initial entry by the customer using the company’s payment gateway.
Although this is great from a user experience perspective, this requires the use of a subscription management system coupled which incorporates a strong security protocol to store and protect the data. The subscription management system can then be used to send automatic receipts, marketing campaigns, or other communication necessary with customers.
It’s vital to choose the right payment processor that can fulfill all the payment requirements of SaaS companies’ customers for an intuitive and frictionless experience.
Transaction Reconciliation and management
Collecting, managing, and reconciling receivables is an old problem. Technology has made great advances in the types of businesses around how they interact with customers, however, the task of invoicing, keeping track of the customer types, payment cycles, payment processing methods, and fees are all still prevalent.
Granted the process has become much more efficient. Payment processing and subscription management tools now offer great versatility with automated invoicing, payments reconciliation, and the ability to track, alert and manage all failed transactions.
Payment options SaaS companies offer are another area of focus when collecting payments from customers. Do you accept all the major credit card types? Can your customers pay via a digital wallet? Can they use ACH or direct debit transfers? Can they store a combination of multiple payment types or credit cards? These are all hurdles that can be easily addressed using the right payment processing system and strategically building stickiness into your product.
SaaS companies now also get a quick real-time overview of all their customers; who pays what, what they subscribe to, how long they’ve been a customer, payment history, demographic data, etc. All this can add a layer of understanding of your customers for insight into your strategic planning for the next iterations of your product.
One of the main goals of payment processing is to ensure that SaaS companies are offering a secure means to pay for their software. It will be important to use industry-standard encryption, i.e, Secure Socket Layer (SSL).
Furthermore, with most SaaS companies conducting business online and processing transactions without a physical presence, these transactions are classified as ‘Card Not Present. Such transactions require additional security measures vital for processing them, such as Address Verification Service (AVS), supporting MasterCard Secure Code and Verified by Visa, and Card Code Verification (CVV2).
Finally, SaaS companies need to safeguard consumer data they gather in processing payments. One prime example of such enhanced safeguards is tokenization. This is a highly secure method of protecting customer data used for payment processing. Tokenization will take all the vital personal data needed for payment processing and replace that with a string of numbers that only the tokenization master key can decipher.
Facilitating cross-border commerce has become more efficient over the years but it is still encumbered by excessive fees, the long fund holds, and not all types of payment processors offer the functionality. These challenges can be even more pronounced for SaaS companies as they often market their software and tools to anyone anywhere.
Even if a business can find a payment processor that can facilitate cross-border transactions, SaaS companies need to be mindful of the various payment methods different demographics prefer across the world. Payments by e-wallets have become increasingly popular in the US but this trend lags many other countries around the world which prefer digital wallets as they often have a larger portion of the population unbanked and don’t have credit or debit cards.
It’s important to understand these nuances and evaluate which type of currencies, payment methods, and countries are supported for cross-border transactions by your merchant account provider.
SaaS companies are all the rage right now as they grow by leaps and bounds due to shifts in how businesses are incorporating the business model. SaaS companies have a responsibility to offer a payment option that is specific to customers’ basic needs and offered with the best-in-class service.
With a host of different clients that may need their software solutions, and the numerous challenges facing them in processing payments for clients all around the world, SaaS companies have to be very diligent around how to handle those challenges.