Credit Card Processing Blog

Installment payment plans are set up when a single purchase of merchandise or services is billed to an account in multiple segments (installments), over a period of time agreed upon between a customer and a merchant. Installment plans are similar to recurring payment plans in that payments are made on a continuous basis for some time in the future. There is a clear distinction, however, and it can be found by looking into the time frame of the payment arrangement and the share of the purchased product or service received by the customer at the time the sales contract is signed:

• With recurring payment arrangements products or services are received over time, while an installment transaction represents a single purchase where the customer receives the purchased item immediately upon signing the contract, with payments occurring on a schedule agreed by the cardholder and the merchant.
• With recurring plans the product or service can be received for an indefinite amount of time, until the plan is canceled, while installment plans payments are scheduled for a specific time period.

An example for an installment payment plan would be a car loan or a house mortgage, where consumers make a fixed number of monthly payments until the loan is paid off. Recurring plans are newspaper subscriptions, cable TV and internet services, etc.

The following best practices will help you to manage your installment payment plan arrangements more efficiently and to improve customer satisfaction:

• Give customers the option of choosing their billing date. This is especially important in arrangements where the payments are drawn from a checking account, as your customers know best when funds are available.
• Inform customers how your business name will appear on their statement. This information is managed through your merchant account’s billing descriptor. Contact your payment processor and make sure your billing descriptor is set up correctly. Issues may arise if your legal name is different from your “Doing Business As” (DBA) name, as your billing descriptor is typically set up to display the former, while your customers recognize the latter.
• Always ask the cardholder for his or her billing address as it appears on their statement and if different, the complete shipping name and address.
• Provide an easily accessible link to your cancellation policy on the purchase agreement or on your website. If a purchase is canceled, make sure the billing is immediately discontinued and promptly process credits when applicable. This will help minimize customer disputes and chargebacks.
• Provide your customers with clear information concerning the billing arrangements and all applicable shipping charges. Send a billing reminder 14 days prior to processing each payment.
• For web-based transactions, require that your customers accept your terms and conditions statement by clicking on an “Accept” or “Agree” button.
• Use the Address Verification Service (AVS) with the first payment. The AVS verifies the validity of the billing address provided by your customer by comparing it to the one on file with the card issuer.
• Ask for the card security code (CVV2, CVC 2 or CID) when processing the first payment. Card security codes are the three-digit numbers found in the signature panels on the back of Visa, MasterCard and Discover cards and the four-digit numbers found slightly above and to the right of the account numbers of American Express cards. The credit card companies introduced the security codes as an additional way to help merchants who accept payments in a non-face-to-face setting verify that their customers are in a physical possession of the card at the time of the transaction. Be advised that you should never store card security codes in any way to avoid fines.
• If merchandise cannot be delivered as promised, immediately notify your customer. Explain the reason for the delay and provide information on the expected new delivery date.
• Provide a toll-free number for customer inquiries and cancellation requests. Display your customer service number prominently on your website, so that it is easy to locate.

Recurring payment plans. Recurring payment plans exist when multiple transactions are processed at predetermined intervals, as a result of an agreement for the purchase of products or services that are provided over time. A cardholder authorizes a merchant to charge his or her payment card on a regular basis (usually monthly, but it can be at other intervals) for a period of time, however the interval between any two consecutive transactions cannot exceed one year. The transaction amount can be fixed or it can vary. The recurring payment plan is in effect until canceled by the consumer. A good example is a newspaper subscription where a consumer can be making payments indefinitely, until the subscription is canceled. A recurring plan differs from an installment payment plan in that in the latter you have a fixed amount to be paid and the installments are agreed upon in advance and made until paid in full.

Benefits. Recurring payment plans help simplify the process of billing a cardholder for a product or a service that is being provided on a continuous basis. The main benefits that merchants get from a recurring payment plan are that it reduces costs, associated with the processing of a single payment, while simplifying the billing process and saving time. Recurring payments also help increase customer loyalty, increase efficiency and improve the cash flow by ensuring timely and regular payments.

Key features. A typical merchant / customer relationship involving a recurring payment plan features the following characteristics:

• A consumer agrees to receive ongoing services or goods until the contractual arrangement with the merchant is canceled.
• The consumer gives permission to the merchant to bill his credit card account on a recurring basis.
• A transaction amount is agreed on that may be a fixed amount or may vary with each billing.
• A recurring payment relationship consists of more than the initial transaction, with future payments occurring on a regular cycle: weekly, monthly, etc., but not to exceed twelve months.

Installment payment plans. Installment payment plans are similar to recurring ones, however there is a distinction. Installment payment plans consist of a single purchase of goods or services that is billed to an account in multiple segments, over a period of time. A good example would be a car purchase, where a consumer has agreed to receive a loan for a portion of the purchase amount and to repay that loan over a specified period of time.

Recurring vs. installment payment plans. The distinction between recurring and installment payment agreements is that a recurring transaction is payment for goods or services that are received over time, whereas an installment transaction represents a single purchase, with payment occurring on a schedule agreed by a cardholder and merchant.

Recurring Payment Indicator. Recurring Payment Indicator is used to identify recurring transactions within authorization and settlement messages in card-not-present environment. The Recurring Payment Indicator is required in all authorization and clearing records. Recurring transactions are typically lower risk than single transactions and should be approved, provided the account is in good standing.

Recurring payment plan best practices. For best results and to minimize customer disputes, merchants should incorporate into their billing procedures the following best practices:

• Allow customers to choose the billing date. They know best when the money will be available.
• Inform the cardholder how your business name will appear on their card statements. Ensure that the “Doing Business As” name, or some other name, easily recognized by the cardholder, is used when billing or corresponding with the cardholder. Your processing bank will be able to set your billing descriptor to show the desired name.
• Provide a clear statement of your cancellation policy on the cardholder’s agreement and your website. This will help minimize chargebacks.
• Provide the cardholder with clear information regarding the billing arrangements, all charges related to the delivery of products and services.
• Ensure that billing is discontinued immediately upon the cardholder fulfilling the cancellation terms and provide the cardholder with cancellation confirmation including when the last billing will occur if this has not already occurred, or if a credit is due when the credit will be processed.
• Ensure that the cardholder is notified when goods or services cannot be delivered or provided on the agreed upon date.
• Provide the cardholder with an easily accessible contact number for customer service inquiries, and also the right to terminate the recurring transaction.
• Ensure an authorization request is made and approval is obtained before a payment is submitted for clearing.
• Make sure that all transactions reflect the Recurring Payment Indicator.
• Contact the cardholder to obtain alternative account billing details if the authorization response is a decline.

Merchant pre-billing notification. You should provide a merchant pre-billing notification prior to submitting an authorization request for a recurring transaction and you will see less customer disputes and chargebacks. Following is a sample of such a notification.

“To: customer name@account.com From: merchant name@account.com

Subject: Recurring transaction notification Date: 8 January 2010 03:15:02 -0500

Dear Customer Name,

This email confirms your authorization* of the

transaction listed below, entered on 01/08/2010 at 3:14:49 AM

has been processed and will be debited from your account.

Transaction Origination Date: 01/08/2010

Name on Account: Cardholder Name

Amount: $14.95

Description: Approved recurring charges on 2009-12-08

*You have authorized Merchant Name Services, Inc and your

financial institution to initiate the transaction

detailed below. You have acknowledged that the origination

of debit or credit transactions to your account must comply with

the provisions of local laws. This authorization is to

remain in full force and effect until Merchant Name Services,

Inc has received written notification from you of its

termination in such time and manner as to afford

Merchant Name Services, Inc and your financial institution a

reasonable opportunity to act on it.

Processed for: Merchant Name Services, Inc

Phone #: 800-111-1111

Email: merchant name@isp.com”

Learn how to minimize chargebacks and fraud

Learn how to minimize chargebacks and reduce your processing costs. The Chargeback Management kit contains a video and an e-book:

• E-Book – Chargeback Manual (40 pages).
• Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).

Your e-commerce website should clearly communicate to visitors where you stand on consumer privacy and what you do to protect personal information, how billing and shipping will be handled, and what your return and refund policies are. The more customers know about your business practices, the better. Implement the following features and content into your website and you will see less customer disputes and will reduce the number of chargebacks.

1. Full description of products and services. The importance of accurately describing the product that you are selling or the service that you are offering cannot be overstated. Different customers are looking for different features in a product and are evaluating the quality of a service based on criteria that you might not even consider. Provide as much information as possible, even if it looks redundant or needless. Use product images, if possible.
2. Telephone number and email address. Customers often have questions regarding their purchases. Providing an easy way to contact you is key to minimizing customer disputes and chargebacks.
   • Provide an easy-to-locate email contact option on your home page. For better results, offer customers separate email addresses for different inquiries (product, shipping, billing, return, etc.).
   • Send auto-respond emails to customers to acknowledge receipt of their inquiries and to inform them when they should expect their questions to be answered. Make sure that you respond within the promised time frame.
   • Display your customer service’s phone number on your home page. You should offer a toll-free number in addition to a local one. Email communication may very well be sufficient for many consumers, but not having a phone number to call is a leading cause for customer dissatisfaction and chargebacks. Consumers often need immediate attention and, if not provided, are likely to contact their card issuer and file a dispute.
3. Return, refund and cancellation policies. These policies should be carefully designed to demonstrate your commitment to customer satisfaction.
   • Your return, refund and cancellation policies must be made available to consumers through a link on your website’s home page.
   • Customers must agree to the terms of these policies during the order process. Have your customers click on an “Accept” or “Agree” button to confirm acceptance of the policies before submitting their payment information. Then, once the order has been submitted, send your policy to the customers with the order confirmation email.
4. Recurring transactions. Recurring transactions are one of the major sources of customer disputes and chargebacks and I have written about them at greater length here. You should require customers to click on an “Accept” or a similar button to acknowledge acceptance of the recurring payment plan agreement.
5. Product delivery policy. Include the delivery time frame and any restrictions that you might have on delivering your products. If there is a change in the delivery date, especially if it is going to be late, immediately notify your customer.
6. Shipping policy. Your shipping policy must be available to customers through a link on your home page and. With your shipping policy you should:
   • Explain shipping options and expected delivery.
   • Provide full disclosure of all shipping and handling charges.
   • Develop an email response system to inform customers of expected delivery delays.
7. Billing practices. A full disclosure of your billing procedures should be made available to customers at the time of purchase.
   • Tell your customers when their cards will be charged.
   • Inform customers how the transaction will be displayed on their credit card statement, so they can easily identify it.
   • Advise customers to keep a copy of the transaction.
   • Include your billing disclosure in the order confirmation email that you will send to your customers.
8. Transaction currency. Clearly state the currency that your transactions will be processed in. Do not assume that your customers will know that. Remember that the internet allows consumers from all over the world to visit your website. Once you have stated the transaction currency, you may provide a currency conversion tool to help consumers estimate the cost in their own money, but you should clearly state that this tool provides the conversion amount for information purposes only.



9. Home country. You need to state the country your business is established on your website. Your payment processor can help you with the statement.
10. Export restrictions. List on your website all export restrictions that you are aware of for the products that you sell.
11. Privacy statement. You will have to develop a privacy statement and make it available on the home page of your website. You should tell visitors:
    • What customer information is collected and tracked.
    • With whom this information is shared.
    • How customers can opt out.
12. Register with a privacy organization and display their sign on your website. A membership with an organization like BBBOnLine is another way to demonstrate to your website’s visitors that you are serious about protecting personal data.