Recurring payment plans occur when consumers authorize merchants to charge their payment cards a pre-determined amount on a regular basis (monthly, quarterly or yearly). A typical recurring payment plan is a cell phone service plan or a cable TV service. Typically recurring plans are set up for an indefinite period of time and the payments will be charged until the cardholder cancels the plan. There are a number of factors, inherent in a recurring payment plan, that make them particularly vulnerable to customer disputes and the resulting chargebacks. The payments have been pre-determined and can go on for months or years which makes it easy for the customer to forget or lose track of them, or his or her credit card account to be canceled or the account number to be changed, etc.
In order to minimize the risks associated with recurring plans and for best customer experience, merchants should incorporate the following practices into their recurring plan payment procedures:
Store the card's expiration date on file and include it in all authorization requests. Make sure to contact the cardholder if the card is nearing its expiration date and obtain the new one.
Always use the Address Verification Service (AVS).
Clearly identify recurring transactions as such when processing them. This identification is, in most cases, handled by your merchant services provider but you should make sure that the system is properly set up.
Always notify cardholders before processing a recurring payment. Notices should be sent no less than 10 days in advance of the charge. In the notification you should include the card processing amount and the date on which it will be charged.
Store cardholder information in a secure manner.
Never store Card Security Codes. Card Verification Codes are three- or four-digit numbers on the back or front of credit cards that are used to verify that customers are in a physical possession of their cards.
Promptly follow-up on customer complaints. Respond quickly to customer complaints and address their issues immediately.
Immediately honor a cancellation request. Upon receiving a cancellation request you should immediately cancel the recurring plan and issue a credit, if applicable. Notify your customer that his or her request has been fulfilled and the payment plan has been stopped. Be advised that, in the event of a chargeback resulting from an unfulfilled cancellation request, the cardholder does not have to prove that such a request has been made.
As with other card payment processing procedures, using common sense in dealing with recurring payment plans is your most powerful tool. Keep your customers aware of the status of their plan by regularly sending them emails, ask them for an alternative payment method if a payment does not go through and honor their cancellation requests immediately. Your merchant services provider should be able to assist you in implementing your recurring payment procedures.
