Annual Credit Card Billing Subscriptions

Posted on Thursday, October 02, 2008 by Bryan Johnson

Coming up with the optimal pricing structure for a product or service is tough. Beyond factors such as competitor pricing and target market price point analysis, merchants need to consider the limitations that accompany collecting money via a credit card.

The reason behind the limitation: financial risk.  Merchant account providers are on the hook for the money their customers process. For example, if a company accepts 1,000 annual subscriptions at $129 and then declares bankruptcy two months later, the merchant account provider is responsible for paying back the full $129,000 to cardholders when they file chargebacks.

Some merchant account providers will maintain a hardline for anything greater than 30 day recurring billing cycles while others with a bigger appetite for risk may allow quarterly, semi-annual or annual billing from the start. This becomes less of an issue if a company has a demonstrated track record and financial strength.  

Whatever billing strategy a company pursues, it's a good idea to make sure that all billing intentions and practices are fully disclosed upfront to avoid future problems.  

Related:
Jason Fried of 37signals has a good post about their experience with this.