AT Integrated Blog

Recurring Billing, Membership Payments, Internet Marketing, Fraud Prevention - Tips And Advice.

11/23/2010 Back

Recurring billing has become extremely popular lately in the internet marketing circles and has been very widely used in e-commerce.

If you are trying to launch a business based on recurring billing you will need to learn the correct definition for this practice. And there is a very important element in it. The customers have to allow you to bill them. In other words you need customer’s consent to provide a product or service and bill for it on a recurring basis. Also recurring billing in the context of internet marketing refers to charging a credit card or a bank account automatically on a predefined period of time. The customer needs to agree to receive your product or services and get charged on the proposed recurring schedule. This is very important element of the recurring billing practices. You need to make sure that this is clear to your customers. Not complying with this rule can cost you more than you earn. If you are a high volume seller many people would love to get you on a class action law suit and make a good chunk of money for themselves (the more sales you make the greater the chance for a lawsuit even if you comply with all the rules). But most of all if you do not comply with this regulation you are practically stealing and committing a fraud.

Rule#1. Make sure the customers understand what they will receive and they agree with your recurring billing terms. This needs to be clearly stated and the customer needs to be well informed. Details of terms of cancellation, returns and period of returns, free trial terms and alike have to be disclosed. Internet marketers are sometimes tempted to hide this information or use insurance policy language that cannot be understood so they can lure the customers into signing up but this practice does not pay out. It will backfire and hurt your business. Unlike some insurance  the purchase of your product or service is not required by law – don’t forget that. A good practice is to record the terms and conditions that customer agreed to at the time of purchase. In this way if you ever change your terms and conditions you can always refer to what your customers read when they subscribed for your service.

Rule#2. You should provide the service or product you promised. There is no need to explain what it means if you don’t. Unless you make the laws you will be committing fraud. And this will cost you.

Rule#3. Provide refund policy. Explain to the customers and disclose clearly under what circumstances they can receive a refund. Most merchant account providers will require this and it does not hurt to have. Some internet marketers have tried to lock the customers into agreements where they cannot get a refund easily but a common agreement is that it is better to issue refund and take a small loss instead of fighting it and taking a bigger loss. A refund will generally cost you a few cents where a chargeback starts at $20 and up. Plus a chargeback will affect your merchant account standing and may result in your merchant account being closed, freezing of funds and similar financial problems.

Rule#4. Provide customers with contact information so they can communicate with you. This will save you a good number of charge-backs and complaints. After all if you are not lying to your customers you should have no reason to hide from them. Usually for higher sellers taking a call volume may be a practical obstacle so you need to make sure you have a good way of communication with your customers. But be careful when hiring a call center. When Patrick from New Delhi asks the customers for their name and last four of their credit card five times this will do you no good. Also applying the insurance company strategy of “don’t act unless they keep on calling” will not work either. If the customer does not call again they most likely will call their credit card company and this will result in a chargeback - $25 out of your pocket plus the cost of the product in some cases. Make sure you have a good communication channel with your customers and show them some respect. After all they keep you in business.

Rule#5. Loyal customer base will take a long way. Try to build and maintain loyal customers. It will keep you in business longer. The average lifespan of a membership in recurring billing terms in the internet marketing world is about 1.5 to 3 months. The average lifespan of a loyal customer membership could even go on for an year or more – depending on the product you sell. Loyal customer is the key to success. Whatever you sell on the internet there will be someone else who sells the same or similar product cheaper. However internet users are reluctant to leave credit card information on suspicious sites. You can still win your customers by providing credibility and good service.

Rule#6 – Do not commit fraud and beware of fraud. Pick carefully the sources of your internet traffic. Many internet marketers purchase web traffic from affiliate networks and are very excited by the quick sales volume to later realize that a large portion of it came from stolen credit cards. Affiliates work for a commission and they will do anything to get it. Your affiliates have their own affiliate networks who also earn a commission and before you know it 20% of your sales may originate from stolen credit cards. Not only you will have a lot of problems to deal with but in the eyes of the public you will be the thief, which will hurt your business on the long run.

Another common fraud problem is gift card fraud. It is actually very simple to execute on a free trial sales scenarios. For example if you sell a product on a 15 day free trial basis and pay the affiliate $20 per sale, they will go out and buy gift credit cards for $3 each, pay the shipping fee of $3 that you charge and get the $20 commission. Then when it comes time for you to charge the full price of the product these sales will not convert due to lack of funds. It is a situation hard to deal with and that is why affiliates want their commissions right away.

To avoid affiliate fraud some merchants implement a call back service where a customer service rep calls the customer to verify the sale.

Another practice of legal fraud is when you automatically subscribe the customer for some kind of service when they buy a product without clearly stating that. Usually these are some bogus services that charge a couple of dollars per month and the merchant relies on the fact that most people do not read their credit card statements. You should not do that. It is a theft.

Probably the least of your worries is customer fraud. Although this is the smallest fraud issue of all you may have to deal with it. If you sell a hot item at a discount or on a fee trial basis and try to implement one item per household you will end up with some customers trying to get more than one product. In most cases they did not read the terms and agreements and when they get charged later they will call for a chargeback directly. Knowing that they tried to take advantage of you these customers will not contact you but will try to make a big case where they were charged without consent. You will know these customers as they are the ones that placed the orders. They usually do not deny the orders but claim that they did not know that they will be charged if they do not return the product. In fact they did not lie. The word “free” grabbed their attention and they did not read further. In most cases you will end up being the wrong party. To prevent that implement security and fraud checks.

Running a recurring billing based business may sound scary but it is a very lucrative business model. All you need to do is make sure you are offering a product of value, be honest with your customers, comply with the requirements and work towards preventing fraud. You will enjoy a nice revenue stream. And don’t forget – protect yourself at all times:)


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