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Author's profile photo Rizwan Khan

The Impact of Payment Automation in the Subscription Economy

Both during and post-pandemic, the subscription economy has experienced a complicated time. Some businesses, particularly in the SaaS and entertainment verticals, have seen a massive surge in growth, while others have faced more challenges than opportunities.

In this complex scenario, one thing is for certain, as the subscription business model continues to snowball in popularity, businesses must cope with new challenges that arise from growing competition and subscription fatigue.

Research from The Kearney Consumer Institute reports, more than half of consumers surveyed said they would like to pay less than $50 per month for subscriptions. This is despite national data suggesting that they are most likely spending at least 40% more on subscription payments.

So how can your subscription business stay on the right side of the subscription experience? By keeping up with the unprecedented demands for flexibility, agility, data security, and compliance and consistently adding value through your subscription offerings.

One key ingredient to this recipe for success is payment automation.

In this cut-throat climate, using manual and cumbersome payment frameworks could very well be the final blow to your subscription business. Let’s explore the impact payment automation has on the subscription economy and how it can help businesses power growth in an aggressively competitive marketplace.

What is Payment Automation?

In the context of the subscription economy, payment automation can be used to simplify the accounts receivable process. It reduces manual labor, improves the speed and accuracy of payment processing, and can be used for both accounts payable and accounts receivable processes.

Accounts payable automation involves automating the payment process for invoices received from vendors or suppliers. On the other hand, accounts receivable automation involves automating the process of receiving and processing payments from customers, including data capture, authorization, document storage, and invoice generation.

Benefits of Automated Payment Processing

Through automated workflows, recurring payments associated with subscription billing cycles can be executed efficiently, securely, and without errors or delays. This eliminates the need for human interaction, saving time and reducing the risk of mistakes.

Additionally, payment-related tasks such as invoicing, verification, and reconciliation can also be automated, which cuts costs and increases efficiency and compliance.

How Does Payment Automation Work?

Payment automation typically involves the use of SaaS tools to orchestrate frictionless payment processing from start to finish. It follows the following steps:

1. Data Capture

The process begins with data capture, where payment details are collected and recorded.

This can be done through a variety of channels. Checkout may be done through,

  • Embedded checkout forms on preexisting websites or mobile applications
  • Hosted payment pages
  • API-integration

With a robust payment gateway representing your business at all times, your customer’s sensitive payment data is encrypted and safely escorted to the payment processor.

2. Authorization

After payment data capture, the payment authorization process begins.

Payment authorization involves verifying that the payment is valid and that the customer has sufficient funds to cover the payment. Integrating a robust payment gateway with your subscription management software allows you to accept online payments securely.

3. Payment Processing and Invoicing

After payment authorization is complete, the payment can be processed and recorded.

At the start of the billing cycle, the payment processor automatically charges the customer’s preferred payment method. This includes automated clearing house or ACH verification. The virtual transfer of funds from one account to another requires the recipient’s bank account data to be verified and securely stored beforehand.

Next, an invoice or receipt is generated, sent out to the customer, and the payment is listed in the accounting system. The invoices are generated automatically and stored for review at the appropriate time in the billing cycle. If there are any inconsistencies, they can be flagged for manual review before the invoice is sent out to the customer.

4. Payment Reconciliation

Finally, payment reconciliation can also be automated.

Payment reconciliation involves matching payments received to outstanding invoices and ensuring that all payments are accurately recorded in the accounting system. By automating this process, companies can reduce errors and improve the accuracy of their financial records.

The Positive Impact of Payment Automation on Subscriptions

Payment automation has had a huge positive impact on the subscription economy by optimizing recurring billing. The following are some of the positive impacts.

1. Eliminate Invoicing Errors and Delays:

With the help of a subscription management and billing automation vendor, invoices can be dynamically tracked and generated based on usage. This ensures that the invoices are clear, accurate, and tailored to the specific needs of the customer.

Automated invoice generation can reduce invoice processing costs by 50%. It also ensures no missing, inaccurate, or confusing invoice issues arise that could frustrate customers and lead to churn.

2. Quicker Approval Rates:

Payment automation allows companies to send all invoices ready for payment out in batches. Automation tools can automatically verify payment information, such as the customer’s payment history and account balance, and determine whether a payment should be approved or declined.

Automation improves workflows so finance teams can see all their paid and unpaid invoices in one space. With faster reconciliation and approvals, companies may be able to pay approved invoices in minutes rather than hours.

3. Enhanced Fraud Protection:

Payment automation provides a secure payment processing environment, protecting both the business and the customer from the risk of fraud or data theft. Data encryption and secure payment gateways have multiple systems in place to meet this end. These include 3D verification and cutting-edge fraud detection and prevention tools.

4. Increased Accuracy:

Payment automation reduces the risk of errors, ensuring that payments are processed accurately and on time. This is vital to boost customer retention. A single negative transaction experience can result in customer churn due to the sensitive nature of this business operation.

5. Reduced Cost:

Payment automation decreases operational costs since it:

  • Improves productivity by eliminating manual tasks like data entry and manual reconciliation
  • Uses fewer resources in payment processing
  • Improves accuracy of payments made
  • Allows businesses to access cheaper payment methods

6. Improved Customer Experience:

Automated payments provide customers with a convenient, frictionless, and hassle-free payment experience, increasing customer satisfaction and promoting customer retention.

Payment automation is a powerful tool for subscription businesses looking to manage recurring payments and streamline financial operations. By automating payment-related tasks, businesses can improve efficiency, enhance security, increase accuracy, and provide a better customer experience.

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