Every subscription business has a silent revenue leak: failed payments that quietly cancel customers who never intended to leave. This involuntary churn accounts for 20-40% of all subscription cancellations, yet many businesses ignore it entirely.
The solution is dunning—the systematic process of recovering failed payments through automated retries and customer communication. Done right, dunning recovers 50-70% of failed payments and can add thousands to your monthly revenue without acquiring a single new customer.
Understanding Why Payments Fail
Before you can fix failed payments, you need to understand why they happen. Most failures aren't caused by customers who want to cancel—they're caused by technical and logistical issues that are entirely recoverable.
Credit card expiration is the leading cause of failed subscription payments, responsible for approximately 45% of all failures. Cards typically last 3-5 years, which means in any given month, a percentage of your customer base has cards approaching expiration. These customers haven't decided to leave; their payment method simply stopped working.
Insufficient funds cause another 30% of failures. This is particularly common for subscriptions that charge on fixed dates—if your billing date happens to fall right before payday, some customers will temporarily be overdrawn. These failures often resolve themselves within a few days without any intervention.
The remaining 25% comes from a mix of card limits exceeded (daily or monthly spending caps), fraud protection triggers (especially for customers traveling internationally), and genuine bank declines. Some of these are recoverable; others are not.
Let's put numbers to the problem. A SaaS business with €50,000 MRR and 5% monthly payment failure rate loses €2,500 in attempted charges each month. Without dunning, perhaps 20% of those customers will proactively fix their payment method, recovering €500. The remaining €2,000 in monthly revenue simply disappears.
Over a year, that's €24,000 in lost revenue—from customers who never chose to cancel. Effective dunning can recover 65% or more of that amount, turning a €24,000 loss into just €8,400.
Building an Effective Retry Strategy
The first line of defense against failed payments is automatic retries. But timing matters enormously—retry too quickly and you'll fail again; wait too long and the customer forgets about you entirely.
When a payment fails, the worst thing you can do is immediately retry. The card that declined at 9:00 AM won't magically work at 9:05 AM. Whatever caused the failure—insufficient funds, daily limit reached, fraud hold triggered—is still in effect.
The optimal retry schedule uses exponential backoff, spacing retries further apart over time. A proven sequence is: first retry after 1 hour, second retry after 4 hours, third retry after 24 hours, and fourth retry after 48 hours.
This timing works because different failure causes resolve on different timescales. A fraud hold might clear within hours as the bank's algorithms determine the charge is legitimate. Insufficient funds typically resolve within 1-3 days as deposits arrive. Daily limits reset at midnight.
Not all payment methods behave the same way. Credit cards are generally more lenient than debit cards—they're less likely to decline for insufficient funds since they're not drawing directly from a bank balance.
Bank transfers (like SEPA Direct Debit) have their own failure modes and recovery patterns. A failed direct debit might indicate the customer closed their bank account entirely, which requires a different recovery approach than an expired card.
PayRequest's dunning system automatically adjusts retry logic based on payment method and failure reason, optimizing recovery rates without manual configuration.
Crafting Dunning Emails That Convert
Automatic retries recover some failed payments silently, but others require customer action. This is where dunning emails become critical—and where most businesses get it wrong.
The instinct is to be aggressive: "Your payment failed! Update your card immediately or lose access!" This approach feels decisive but actually reduces recovery rates. Customers who feel threatened are more likely to see the email as an opportunity to cancel than an invitation to continue.
Effective dunning emails are helpful, not hostile. They assume good faith—the customer wants to remain a subscriber and just needs assistance fixing a technical problem. The tone should be "Hey, we noticed an issue and want to help you fix it" rather than "You owe us money."
The first email should go out immediately after the initial payment failure and retry attempts. Keep it simple and action-focused: explain that the payment didn't process, provide a one-click link to update payment information, and reassure them that their service remains active for now.
Example: "Hi [Name], We tried to process your subscription payment, but it didn't go through. This sometimes happens when cards expire or banks flag unusual activity. You can update your payment method here: [button]. Your account remains active, and we'll retry the payment in a few days."
The second email arrives 3-4 days later if the payment still hasn't succeeded. This email can mention the upcoming service impact without being threatening: "We're still having trouble processing your payment. To avoid any interruption to your service, please update your payment method by [date]."
The final email, sent 1-2 days before access would be suspended, is more direct but still respectful: "This is a final reminder that your subscription payment hasn't been processed. Your access will be paused on [date] unless we can complete the payment. Update your card here to continue using [product]."
Generic emails underperform personalized ones. Include the customer's name, mention their specific subscription plan, and reference how long they've been a customer. A message to a 3-year subscriber should feel different than one to a 3-month subscriber.
Also personalize the timing. If you know when the customer typically logs in or uses your product, send dunning emails shortly before that time—they're more likely to take action when your service is top of mind.
Implementing Grace Periods
The grace period—the time between payment failure and service suspension—is one of the most important dunning decisions you'll make. Too short cuts off customers who would have recovered; too long enables indefinite free access.
For most subscription businesses, a 7-day grace period balances recovery and risk. This gives enough time for:
• Multiple retry attempts to succeed
• Customers to receive and act on dunning emails
• Temporary bank issues to resolve
• Paychecks to arrive and replenish accounts
Some businesses extend to 14 days, especially for annual subscriptions where the relationship is longer and the stakes are higher. Others shorten to 3-5 days for low-value subscriptions where extended grace periods don't justify the cost.
During the grace period, customers should retain full access to your product. Some businesses restrict features or show warning banners, but this often backfires—it reminds customers they could cancel entirely rather than encouraging them to update their payment.
The goal is a seamless experience where, ideally, the customer updates their card before they even notice a problem. Dunning emails arrive, they click the link, update their card, and the next charge succeeds—all without any service disruption.
If the grace period expires without successful payment, you have a choice: suspend access immediately or cancel the subscription entirely.
Suspension is generally preferable. The account remains intact, the customer can reactivate by simply updating their payment method, and you haven't burned the relationship. Some customers return weeks or months later when their financial situation changes.
Full cancellation should be a last resort, typically only after 30-60 days of failed payments with no customer response.
Measuring Dunning Performance
You can't improve what you don't measure. Tracking the right dunning metrics helps you identify weaknesses and optimize recovery rates over time.
Recovery rate is the primary metric: what percentage of initially failed payments do you eventually collect? Industry benchmarks range from 50-70%, with well-optimized dunning systems achieving 65%+. If you're below 50%, significant improvement is possible.
Break down recovery by source: how much comes from automatic retries versus customer-initiated payment updates? This tells you whether to focus on retry timing or email optimization.
Track time to recovery—how many days does it take on average to collect failed payments? Faster recovery improves cash flow and customer experience.
Run A/B tests on dunning emails. Test subject lines, email timing, button colors, and copy tone. Small improvements compound: increasing email click-through from 10% to 15% might boost recovery rate by several percentage points.
Analyze failures by payment method. If certain cards or banks fail more frequently, consider prompting customers to update to more reliable payment methods.
Review the customers you couldn't recover. Are there patterns—certain plan types, customer segments, or failure reasons that predict unrecoverable churn? This insight can inform both dunning and broader business strategy.
Getting Started with PayRequest Dunning
PayRequest's dunning automation handles the complexity of payment recovery automatically. When a payment fails, smart retries begin immediately, optimized by payment method and failure type.
Customizable email sequences notify customers at the right intervals with your branding and messaging. The customer portal provides a frictionless way for customers to update payment methods.
Combined with subscription management and customer tracking, PayRequest gives you complete visibility into subscription health and churn reduction.
Start recovering lost revenue today—create your free account at payrequest.app/register.