Collections & Retention

A recurring service business loses customers two ways. Some stop paying: a card expires, a bank account closes, money runs short in a slow month. Others decide to leave: the price went up, the ants came back, they're moving. The first kind is involuntary churn, and the second is voluntary churn, and both are the same problem from the business's point of view: a customer who cost money to acquire, often through a commissioned sale and a long first visit, stops producing revenue before they've paid that back. The systems in this chapter decide how many of them come back.

What makes it harder than software churn is that every visit costs money. A software company can let a past-due customer keep logging in for a month at almost no cost. A service company that keeps sending a technician to an unpaid account is paying wages, fuel and materials into a debt. So the collections policy is also a scheduling policy, and the two systems have to agree on every account's state.

When a Payment Fails#

The mechanics of retrying a failed recurring payment are covered in the Payments volume: how card declines are classified and how often the networks let you retry (Stored Cards & Recurring Billing), the dunning states that follow (Dunning), and which ACH returns can be reinitiated and which can't (ACH & Bank Transfers). Billing platforms package the card side: Stripe's Smart Retries chooses retry times itself, with a recommended default of 8 tries within 2 weeks, and doesn't retry hard declines at all without a new payment method.

What the service business adds on top:

• Tell the customer on the first failure, with a link that goes straight to updating the payment method (Customer Self-Service). Most failed payments are fixed by the customer within days if they know.
• Block payment methods that will never work. An ACH return for a closed or invalid account, or a hard card decline, means retrying is wasted money (every attempt has a fee) and, for unauthorized returns, a rules violation. Block the method with the reason, and after a run of consecutive soft declines (my default is three), block it too. Unblocking is a deliberate staff action.
• Put the problem where staff will see it. A blocked method creates an alert on the account in plain language ("bank account closed, ask for a new payment method"), so the next person who talks to the customer, a technician at the door or an agent on the phone, asks for it. Deduplicate: one open alert per method, not one per failed attempt.
• Don't route around the rules. A business migrating between processors may hold tokens for the same card at both, and retrying a decline on the other processor is tempting. It's still a retry of the same card, and it should count against the same limits and the same block.

Service and the Unpaid Account#

Every business needs an explicit answer to "do we keep servicing customers who haven't paid?", written down as stages with day counts measured from the invoice's due date, and applied the same way to everyone:

• Past due: retries and reminders run, and service continues. Most accounts resolve here.
• Frozen: at a set number of days past due, invoices are marked uncollectible and the subscription is frozen. My default is about two weeks past due; the right number depends on your margins and how quickly your customers usually pay.
• Written off: at a later set point (I've used around four months), the balance is voided or written off for accounting, and the account becomes eligible for an outside agency.

A freeze is not a cancellation. The agreement still exists, the customer still owes the balance, and paying it restores everything. What a freeze does:

• Stops future visits. Scheduled visits are cancelled with a reason that says why (so they can be rebooked, and so nobody records them as customer cancellations), and their reminders are retracted (Customer Communications).
• Stops new charges from piling up. If the subscription keeps generating invoices while frozen, the customer who pays to come back gets one enormous bill for months of service they didn't receive. Billing systems let you choose: Stripe's pause on collection can keep invoices as drafts, mark them uncollectible or void them, and only voiding creates no charges for the paused period. For service that wasn't delivered, void.
• Blocks self-service scheduling and shows staff why.
• Lifts on payment. A payment that clears the balance unfreezes the subscription and puts the customer back into scheduling, ideally with a visit soon, since they've likely gone weeks without one.

Bad Debt and Receivables#

Invoice states carry the accounting meaning. In Stripe's model, which is typical, an uncollectible invoice is one the customer is unlikely to pay and is normally treated as bad debt, but it can still be paid or voided later; a void invoice is cancelled, zero-value and terminal. So mark uncollectible when you stop expecting payment, and still accept the money if it arrives; void when the charge should never have existed or is being written off for good.

Finance runs on the aging report: open balances grouped by how far past due they are, conventionally 0–30, 31–60, 61–90 and over 90 days, by service center and region. Alongside it, track failed payments over the last week (revenue at risk), refunds (leakage) and write-offs, and regenerate them on a schedule finance can rely on. The aging report is also how you find a service center with a collections problem, or a sales office whose customers never pay their first invoice.

Outside Collection Agencies#

Accounts that are written off can go to a collection agency. The integration is usually a file: a daily export, over SFTP, of eligible accounts and what they owe, plus transaction and write-off files so the agency can reconcile.

• Eligibility is a rule, not a list. A balance above a minimum, a number of days past due, not exempt (a disputed account, a damage claim, a VIP the business chose to forgive), and different thresholds where they make sense, such as giving customers who pay by check longer.
• Placement is a state on the account, with the agency and date. Once placed, stop your own automated dunning, tell agents the account is with an agency, and route payments the customer makes to you back to the agency's records.
• Recall accounts that are paid, disputed or placed by mistake, in the next file.

The legal regime changes when someone else collects. Under Regulation F, which implements the federal Fair Debt Collection Practices Act, a debt collector is someone who regularly collects debts owed to another; a creditor's own employees collecting in the creditor's name are excluded, but a creditor that collects its own debts under a different name that suggests a third party is involved counts as a debt collector. An agency collecting your customers' balances is squarely covered, and owes, among other things:

• A validation notice with the amount, an itemization from a set date, and the consumer's rights to dispute, in the first communication or within five days of it, followed by a validation period running until 30 days after the consumer receives it.
• Limits on calling. A collector is presumed to comply with the harassment rules if it calls about a particular debt no more than seven times within seven consecutive days, and not within seven days after a phone conversation about it.
• Limits on timing. Contact before 8 a.m. or after 9 p.m., local time at the consumer's location, is presumed inconvenient.

You're not the agency, but the data you send decides whether it can comply: the itemization, the dates, the customer's location and time zone, and any dispute or cease-contact request already on file. States add licensing and rules of their own. And keep your own dunning messages within the same windows anyway (Customer Communications); there's no version of collections where a 10 p.m. text helps.

Cancellations#

Voluntary churn starts with a cancellation request, and a well-built cancellation is good for the business: it records why, ends the service cleanly and leaves the door open.

• Reasons are a fixed list, chosen by the agent or the customer, with free text alongside: too expensive, not seeing results, unhappy with service, switched to a competitor, moving, no longer needed, payment failed, payment disputed. Keep the list stable so trends mean something, and keep involuntary reasons (payment failed) separate from voluntary ones.
• Scheduled or immediate. A cancellation can take effect now or at a date (the end of the paid period, the end of the term). Model both: a cancel-at date on an active subscription, then the cancelled state when it arrives.
• Settle what's owed both ways. A calendar plan cancelled mid-season may owe the customer visits they paid for (refund or deliver them) or owe the business for visits delivered ahead of payments; the agreement's terms decide, and the final invoice or credit is generated from them, not improvised by the agent.
• Cascade everything. Future visits cancelled, reminders retracted, autopay stopped, the account marked so sales doesn't count it as active, and an event every system reacts to.
• Restore with a permission. A customer who cancels in anger and calls back the next day should get the same subscription back, with its history and terms, inside a window and by someone allowed to do it.
• Make it as easy as signing up. Cancellation terms for fixed-term agreements, early termination and automatic renewal are regulated, federally and by states (Consumer Protection; Stored Cards & Recurring Billing has the current status of the FTC's rule). Whatever the law requires this year, a customer who can't figure out how to cancel files a dispute instead, and that costs more.

Saves#

Many cancellations are fixable. The save is the attempt to fix one, and it works best when the offer matches the reason:

Reason	Offers that fit
Too expensive	A lower plan, fewer visits, skipping the off-season, a temporary discount
Not seeing results	A free return visit now, a different treatment or technician, an inspection
Unhappy with service	A call from the service center manager, a credit, a different technician
Moving	Transfer service to the new address if it's in a service area
Seasonal or temporary	Pause instead of cancel

• Record the offer and the outcome, accepted or declined, on the cancellation request. Without that, you can't tell which offers work.
• Mark saved accounts, with an expiry (I use a year), and measure whether saves stick: a save that cancels two months later wasn't one.
• Never let the save block the cancellation. Make the offer once, then cancel if the customer still wants to. A retention flow that customers can't get out of is what cancellation rules are written against.
• Feed the reasons back. A service center whose cancellations are mostly "not seeing results" has a service quality problem that no retention offer will fix.

Win-Back#

Former customers are the cheapest leads you have: you know the house, the problem and why they left. Win-back is marketing, so it needs marketing consent (Customer Communications), and it should use the cancellation reason: a customer who left for price might come back for a seasonal offer; one who moved away is gone, but the new occupant of their old house is a lead for sales, and the address's service history is worth something to them. Mark former customers on the sales map so a salesperson at the door knows who they're talking to (Door-to-Door Sales).

Measuring Retention#

Retention numbers are easy to compute and easy to compute misleadingly. Pin the definitions down:

• Churn rate: customers whose subscriptions ended during a period, divided by active customers at its start. Say whether it counts customers or revenue (losing a premium customer costs more than losing a basic one), and whether it includes involuntary churn.
• Cohort retention: of the customers sold in a given month, the share still active after 1, 3, 6 and 12 months. Cohorts expose what a blended rate hides, like a sales season that sold well and retained badly. Seasonal businesses should compare a cohort with the same month last year, not with the month before.
• Cancelled before the first service: sales that never became customers, including those cancelled within the legal cancellation window. It's a sales quality measure more than a retention one, and it's usually reported by salesperson and sales office (Sales Teams & Commissions).
• Early cancellations: cancelled after the first service but within the first few months, which points at the first visits and expectations set at the sale.
• Reasons by place and person: by service center, by technician and by salesperson, which is how retention becomes something a manager can act on.
• Recovery rate: of payments that failed, how many were recovered, how fast, and through which path (retry, customer update, agent call, agency).

These all come from the same events: subscriptions created, first service completed, payment failed, frozen, unfrozen, cancellation requested, saved, cancelled, restored. Emit them consistently, with the reason and the actors, and the metrics are queries (Operating Metrics).

What This Means for the System You Build#

• Retries within the rules, blocked payment methods with reasons, and an alert on the account staff will see.
• A written collections policy as data: days to freeze, days to write off, eligibility for an agency.
• Freeze as its own state, which cancels visits, retracts reminders, stops invoices accruing and lifts on payment.
• Uncollectible and void used for what they mean, and an aging report by service center.
• Agency placement and recall as account states, with the itemization, dates and dispute data an agency needs.
• Cancellations with a fixed reason list, scheduled or immediate, settled from the agreement's terms and cascaded to every system.
• Saves recorded with the offer and the outcome, and never in the way of cancelling.
• Retention metrics with pinned definitions, from consistent lifecycle events.

References#

Specifications

• 12 CFR 1006.2 (Cornell LII), who is a debt collector under Regulation F, and the creditor that collects under another name
• 12 CFR 1006.14 (Cornell LII), the presumption of no more than seven calls within seven days, and none within seven days after a conversation
• 12 CFR 1006.6 (Cornell LII), contact before 8 a.m. or after 9 p.m. presumed inconvenient
• CFPB: Regulation F, 1006.34 Validation of debts, the validation notice, its timing and the validation period

In practice

• Stripe: Automate payment retries, Smart Retries' recommended 8 tries within 2 weeks, hard declines, and what happens to a subscription when recovery fails
• Stripe: Pause payment collection, keeping invoices as drafts, marking them uncollectible or voiding them while collection is paused
• Stripe: How invoicing works, uncollectible invoices as bad debt that can still be paid or voided, and void as terminal