What is a billing cycle?

A billing cycle refers to the interval at which customers are charged for a subscription service, typically occurring on a monthly, quarterly, or annual basis. The billing cycle is the period between one payment due date and the next, and it determines how often a customer is required to make payments in exchange for continued access to a service or product.

Why is the billing cycle important?

A billing cycle refers to the interval at which customers are charged for a subscription service, typically occurring on a monthly, quarterly, or annual basis. The billing cycle is the period between one payment due date and the next, and it determines how often a customer is required to make payments in exchange for continued access to a service or product.

What is dynamic pricing?

Dynamic pricing, also known as real-time pricing, is a strategy where prices are adjusted based on market demand, competitor pricing, and other external factors. This flexible pricing model allows businesses to maximize revenue and profit by responding swiftly to market changes. Unlike static pricing, which remains constant, dynamic pricing leverages data and algorithms to set prices that reflect current market conditions. This strategy is widely used in various industries, including ecommerce, where it plays a crucial role in staying competitive.

Why is dynamic pricing important to ecommerce strategy?

Dynamic pricing is vital for ecommerce because it helps businesses stay ahead of the competition. In the fast-paced world of online shopping, prices can fluctuate frequently due to changes in demand, stock levels, and competitor actions. By implementing dynamic pricing, ecommerce businesses can optimize their pricing strategy to attract more customers, increase sales, and improve profit margins. This approach ensures that prices are always competitive, enabling businesses to respond to market trends and consumer behavior in real-time. Dynamic pricing offers numerous benefits, including more precise pricing, efficient inventory management, and enhanced customer trust and loyalty, making it an essential component of a successful ecommerce strategy.

What is an ACH payment?

An ACH payment (also known as an ACH transfer or ACH transaction) is a type of electronic payment or money transfer made from one bank to another. These direct payments are processed via the Automated Clearing House network, or ACH network, a transfer system that facilitates transactions for financial institutions in the United States. In essence, ACH payments transfer money between different accounts. Common examples of ACH transfers include opting to receive paychecks via direct deposit, making direct deposits from a bank account into a college savings account or retirement account, or paying bills through a bank account rather than via credit and debit cards. ACH payments can be used for both one-time and recurring payments. 

ACH payments: Key benefits & considerations

There are a variety of reasons why individuals might prefer to opt for ACH payments as opposed to checks, credit card payments, or other payment forms. For one, because they do not need to be mailed, these types of payments are often quicker to send than a physical check. Another major advantage to ACH transactions is that they are often free, while wire transfers and other types of transfers can often come with fees. However, there may be limits to the amount of money that can be sent via ACH transfer. Additionally, cutoff times may exist for submitting transfers and having them processed by the next business day.

What is a payment API?

A payment API is an API (application programming interface) that enables ecommerce businesses to seamlessly manage payments. Payment APIs have the power to optimize the payments process for both businesses and shoppers, as they can make transactions faster and more secure. Pricing for payment APIs can vary depending on the provider. Some payment APIs may be free to use, but charge a processing fee depending on the payment instrument.

Payment APIs can be used for a multitude of different payment services, all centered around creating a seamless checkout experience for both merchants and their customers. They can help empower businesses to act as a credit card processor and accept credit card payments, bank account payments, or debit card–based payments. They can also allow businesses to offer a range of payment methods, increasing convenience for customers by allowing them to use their preferred payment method. They can also be used to track payment details and payment information, enable PCI compliance, and more. 

Benefits of payment APIs for online payments functionality

From a merchant perspective, one major benefit of payment APIs is that they can help automate the payments process, meaning less time and resources are needed on the business end to maintain those systems. A payment API can be used to enable both recurring and one-time payments, making them an important tool for subscription businesses. On the whole, APIs are highly customizable and scalable for developers, and can be integrated with a variety of other ecommerce tools and applications.

What are automatic payments?

Automatic payments (also referred to as automatic bill payments) are payments that a merchant automatically withdraws from a customer’s bank or credit union account. An automatic payment arrangement is often used to pay bills—for example, a monthly credit card bill. Automatic payments are also frequently used for paying utility bills, mortgage payments, and more. Subscription merchants can also set up an automatic, recurring payment arrangement for their products and services, such as gym memberships, curated subscription boxes, newspapers, and gated digital content.

How does an automatic payment work? 

To set up automatic payments, first, customers must choose a payment method; i.e. a bank account, credit card, or debit card. Then, they must enter their payment information—depending on the payment method, this can include the account number for a checking account, routing number, the name of the account holder, credit card number, etc. The customer must also give the company explicit permission, or authorization, in advance to withdraw the money from their account at certain intervals. An automatic bill payment can be set up to charge the same amount at each interval (for example, digital streaming services), or for different amounts within a certain time period (for example, a utility bill that changes in pricing month-to-month depending on usage).

What are the benefits of recurring payments?

For merchants, recurring payments provide a reliable stream of recurring revenue, which can facilitate greater ease and accuracy with essential business tasks, such as inventory management and forecasting. However, businesses must maintain accurate account information for their customers, or they can run the risk of involuntary churn if customers’ payment details become out of date.

For consumers, recurring payments can offer enormous convenience and value. For example, a customer of a utility company can avoid making late payments by signing up for automatic payments, thus avoiding late fees. Certain businesses may offer their customers a discount for a subscription—this type of agreement is called “subscribe-and-save.”

What is a payment method?

A payment method is a way that customers pay for a product or service. In a brick-and-mortar store, accepted payment methods may include cash, a gift card, credit cards, prepaid cards, debit cards, or mobile payments. For an ecommerce business, online payment methods may include credit or debit card options, prepaid cards, gift cards, a direct debit or transfer from a bank account, payment processors, and more. 

Within each type of payment method, there are often multiple payment options. For example, payment processors can include Stripe, Authorize.net, Braintree by Paypal, Shopify Payments, and more, while credit card options can include American Express, Mastercard, Visa, and Discover. Other payment methods include Google Pay and Apple Pay.

Best business practices to manage payment methods

When determining which and how many options for different payment methods to offer your shoppers, it’s important to strike the right balance. Offering options for multiple payment methods allows your customer base flexibility to use their preferred payment method or backup payment methods when interacting with your business. After all, not all payment methods work for every customer. However, if there are too many available payment methods on your checkout page, you may introduce unnecessary complexity to the checkout process.

Therefore, it’s important to do your research. Consider the location of your customers, as certain payment methods may be more popular in some countries than others. Different geographic locations, too, may have different preferred payment methods. Keep your omnichannel experience in mind: Are your customers purchasing more online versus in your physical stores? If so, this may alter your selection of payment method options.

The impact of failed payments

Another key element to consider is whether your brand offers recurring payment options (such as subscriptions and memberships), one-time purchases, or a combination. After all, this can not only impact the payment methods you choose to offer, but also the strategies you require to keep payment information up to date. 

Because recurring customers do not input their payment details every time they order from you, certain payment issues can present the risk of involuntary churn. Therefore, it’s important to have the proper strategies in place to keep payment information accurate. Depending on the business, these could include easy subscription management options (such as the ability to add a new payment method or update a billing address) or strategic outreach when a customer’s credit card is about to expire.

What is payment information?

Payment information is the data that is required for customers to make a purchase online. Payment methods, including credit or debit card, a direct debit from a bank account, or a digital wallet such as PayPal or Apple Pay, are a key component of payment information.

Depending on the specific payment method, other required information can include the user’s full name, credit card number, security code, and expiration date, as well as billing address, account number, routing number, and other information. Any business that has access to customers’ payment information should ensure PCI compliance so that this sensitive information is securely protected.

Keeping payment method information up-to-date

For all businesses, but especially for subscription companies who rely on recurring purchases, it’s important to ensure your customers’ payment information is up-to-date. Doing so prevents involuntary churn, keeping your customers with you for longer and improving lifetime value.

One powerful strategy for reducing friction for your customers is to allow them to manage their own subscriptions. Often, this can be done via the payments page or section of their customer portal. This way, if they’d like to submit a new payment method, select and remove an existing payment method, or update payment details, they can easily do so independently without having to engage your Support team. It’s crucial that they can do this not just via a desktop computer but also via their mobile browser and any apps you offer so customers can update their information quickly as needed.

You can also offer customers the ability to add multiple payment methods to their account so that if their first payment method becomes out of date, the purchase can still be completed with a backup payment method. Dunning, or sending out communication to remind customers to update their payment details when a credit card or debit card payment fails, is another strategy that can help keep payment information up-to-date and prevent churn.

What is a promo code?

Promo codes (short for promotional codes; also known as discount codes, coupon codes, and offer codes) are alphanumeric codes that customers can enter during the checkout process to save money on an order. They are often used to incentivize customers to make a purchase, adding value for the customer and building loyalty for both new and returning customers. A coupon code can be applied to both one-time purchases and subscription products.

Coupon code benefits 

In addition to their money-saving benefits for customers, coupon codes serve as a valuable tracking tool for merchants. They are often used as part of a larger promotional marketing strategy to track the effectiveness of a campaign or advertisement. For example, stores can create platform-specific promotions to target the platforms that are most effective at generating conversions or site traffic. 

Categories of promo codes

There are three main types of promo codes:

1. Fixed amount discounts subtract a specific dollar amount from a purchase. Merchants can ensure that fixed amount discounts apply to any order value, or limit them to orders that meet a specific minimum order value. 
2. Percentage discounts offer a specific percentage off the purchase amount. For example, a store might offer a discount code for 15% off some purchases, such as all their subscription options.
3. Shipping discounts provide reduced-price or free shipping for an order. For example, Amazon Prime offers free expedited shipping for members on eligible items—a brand could offer a similar benefit for select items on their store using a promo code.

Merchants can place a variety of limits on promo codes. For example, codes can be limited to a specific time frame, first-time purchases, a certain number of customers, or customers with member status. Merchants can also set limits on whether the same promotional code can be used more than once by the customer.

What is a payment processor?

A payment processor is a third-party company that manages commercial transactions by securely transmitting payment data between the customer, merchant, acquiring bank, and issuing bank. Payment processors act like virtual cash registers: They enable a store to accept credit or debit card payments for the goods and/or services that it sells. Payment processors quickly relay a customer’s credit or debit card information in real-time to the banks of both the customer and the merchant. If the payment information provided is valid, the charge goes through. Security measures such as encryption or tokenization are crucial in payment processing to ensure that fraudulent transactions do not go through.

Connecting the payment processing company, merchant account, and payment gateway

In order for businesses to accept credit card and debit card payments, they need a designated bank account to put those payments, also known as a merchant account. A payment gateway, meanwhile, is essential for securely enabling credit and debit card payments made online. The payment gateway technology uses data encryption to securely connect the customer’s bank account to the merchant account.

What is a merchant account?

A merchant account is a type of commercial bank account that enables businesses to make, accept, and process credit and debit card payments. Once a customer makes a purchase, the funds are initially deposited in the merchant account before eventually being transferred to the business bank account. 

In order to offer electronic payment options and open a merchant account, a business owner must make an agreement with a merchant acquiring bank. Terms of the agreement often include costs per transaction charged by the bank, the card processing network of the bank and associated fees, and any other recurring fees charged by the bank. 

Types of merchant account providers

Merchant account providers generally fall into two categories: traditional merchant accounts, and payment service providers (PSPs). Payment service providers allow businesses to accept online payments without setting up a merchant account. This option allows businesses to start accepting electronic payments more quickly, but it can also be less customizable, and may not allow price negotiation with the terms of agreement. Examples of PSPs include PayPal, Stripe, and Braintree.

What is a payment gateway?

A payment gateway is a type of payment service technology that securely connects businesses and customers, allowing online and mobile payments to be processed securely and quickly. It is necessary for merchants that process online payments—either ecommerce or click-and-mortar retailers. When customers make a purchase, the payment gateway sends their credit card or debit card information to the credit card network to be processed. Then, it securely transmits the payment information back to your business and tells you whether or not the charge is authorized. If the charge is authorized, the order is completed. 

Payment gateways vs payment processors

While both payment gateways and payment processors are payment solutions that connect the issuing bank account with the receiving bank account and transmit online payment information, they aren’t one and the same. While payment processors are required to process transactions, payment gateway technology can help securely authorize those transactions to ensure the acquiring bank is paid. This is crucial for protecting transaction information in online and mobile transactions.

Need a payment gateway? Things to consider: 

Merchants should look for payment processors that are PCI compliant to ensure their encryption is secure. They should also consider the payment methods their customers use, as each payment gateway typically does not accept payments from every card issuer and payment processing portal. Stacking payment gateways, or using multiple payment gateways on your platform, can give customers more options for possible payments beyond credit card payments—not just multiple credit card issuers, but also options like PayPal, Venmo, and ApplePay.

What is dunning?

Dunning refers to the communication a company sends out to remind its customers to update their payment details when a credit or debit card payment is declined. Dunning is used as a tool to help reduce involuntary customer churn, thus increasing customer lifetime value. It is a particularly useful tool for subscription ecommerce stores, where customers are not entering payment information with every charge—this runs the risk of the recurring payment details becoming out of date over time.

Effective strategies

Dunning includes both seamlessly clearing payments behind the scenes using a customer’s existing card information, and obtaining new payment details directly from the customer. In the past, companies used to send “pre-dunning” communication to customers reminding them before their payment information failed. Today, with advancements to automatic card update technology, this strategy is no longer relevant or effective. 

Many payment issues can be resolved simply by retrying a customer’s current payment details on file, with no action needed on the customer end. To avoid sending unnecessary emails each time a payment fails, one strategy is for businesses to create custom retry schedules to make the process more seamless for customers. Another effective strategy is to ensure dunning emails are consistent with your overall brand identity. Finally, tracking and measuring your performance over time through intentional data and analytics is important for continually optimizing your processes and systems.