Rebilling 101: Every Payment Term You Need to Know

When you decide to start a subscription business, the sheer amount of terms to learn can be overwhelming. What’s a blocklist? What’s dunning, and how can you use it to decrease involuntary churn? Read on to find out all of these answers and more:

The basics: Subscription & payment processing terms you absolutely need to know

There are a lot of terms to keep in mind, but these are the ones you absolutely need to know to be able to run your subscription business well:

Blocklists

A stored value that if matched results in aborting an operation. For example, in Rebilly, you can block customers from purchasing based on the following:

• Customer IP address – IP address of the customer making the purchase;
• Customer email – Email address of the customer making the purchase;
• Customer ID – The Rebilly “customerId” of the customer making the purchase;
• Payment card – The card number of the payment card being charged;
• Payment card BIN – The Bank Identification Number of the payment card being charged;
• Device fingerprint – A string holding information about the software and the device used by the customer making the purchase;
• Country – The country of the customer making the purchase and/or of the charged payment card’s billing address;

When a customer attempts to make a purchase from you with a credit card or fingerprint that has been flagged on your blocklist, the transaction is blocked from being sent to the payment gateway altogether. Why would you want to do this? Your data may show that a payment card has been marked as stolen, so you wouldn’t want to process a transaction on that card again. Blocklists can help you prevent future risky or fraudulent transactions.

A Blocklist, can have an expiration date. By setting up a TTL (time to live), thus making it not permanent. This is typically used to block weak attributes temporarily — like residential IP addresses, which change frequently.

Chargeback

A cardholder can dispute a charge with their issuing bank. If the issuing bank accepts the dispute, it becomes a chargeback. A chargeback is sent through the card association to the acquirer, eventually on to the merchant. The merchant has a deadline to respond to the chargeback. Responding is typically called “representment.” A chargeback has a reason code (the reason codes are specific to and predefined by each of the card brands; such as Visa, MasterCard, American Express, etc.). Chargebacks can become very costly for subscription businesses. Because of that, it’s important to do everything in your power to decrease them and respond to/dispute them when they do happen.

Dispute

A dispute is the result of a customer contacting their bank or credit card company about a charge to their debit or credit card account that they are contesting. The dispute and its related information is then made available to the merchant, who will have the option to represent the charge and win the case. This process is known as dispute resolution. If the merchant is unable to represent the charge, the card issuer will typically rescind the sale and add fees on top of it. This process is called a chargeback.

Dunning

Dunning is the process of methodically communicating with customers to ensure the collection of accounts receivable. In other words, it’s the process of retrying unsuccessful payment transactions. This can be done automatically or manually, and might involve a “dunning discount” (which a merchant grants a customer in exchange for the balance being paid off, instead of being left unpaid). Read more about how to use dunning emails to decrease your churn here.

Fraud

There are two types of fraud: friendly fraud and criminal fraud.

Friendly fraud is usually just buyer’s remorse or forgetfulness — maybe the customer decided they really didn’t need that subscription, or simply forgot they signed up. Regardless, it’s not organized, and not always intended maliciously. A customer simply wants their money back, and they’ve taken measures with their bank to get it.

The intention behind criminal fraud is the opposite of friendly. Someone wants to get something for free, or are after your money, and they are pursuing it in very creative, underhanded ways. For more information about detecting and fighting credit card fraud, head here.

Invoice

An invoice is a commercial document issued by a seller (merchant) to a buyer (customer), relating to a sale transaction and indicating the products, quantities, and agreed prices for products or services the seller has provided the buyer. Payment terms are usually stated on the invoice.

Merchant Account

A merchant account is a specific type of bank account built for businesses, which lets them accept payments (usually via debit or credit cards, but sometimes via other means).

Payment Card

The card a customer is using to pay for their subscription, usually charged automatically.

Payment Gateway

Payment gateways are responsible for processing transactions and distributing funds into your merchant bank account. It’s the online equivalent to card swipe machine in stores. For example, Rebilly is a payment gateway, connected directly to processing platforms, but we’re also a payment gateway that can make connections to other payment gateways. For more about payment gateways and what to look for in one, head here.

Payment Method

The type of payment used to settle a balance due. Some examples are:

• payment card (credit or debit)
• check
• wire
• ACH
• direct debit
• etc.

PCI and PCI Compliance

“PCI” stands for “Payment Card Industry”, and PCI Compliance is a set of security regulations set by the Payment Card Industry. For more about PCI Compliance and how you can become compliant, head here.

Response Message

This term represents the response message, typically meant as the reason for a decline, from a gateway. Each gateway has unique response messages. Some gateways may also have response codes.

Response types:

• Approved: The transaction was approved and processed.
• Declined Soft: This means the transaction was declined, but may work at some point in the future.
• Declined Soft Fix: This means with additional data (or data correction) from the customer, a transaction may be retried.
• Declined Hard: This means the transaction is not likely to work, it does not need to be retried. An example is “No such card issuer,” and “Transaction not allowed,” “Stolen card.”

SaaS (Software as a Service)

“SaaS” stands for “Software as a Service,” which is a software licensing and delivery model where the software is typically accessed online or through an app, and paid for/licensed on a subscription basis. Think about the apps you pay a monthly subscription for – like Asana (project management), Sworkit (workout creation and tracking), Mint (finances and budgeting), etc. As SaaS has become a more commonly used word/acronym, spinoff terms have started to pop up – like “anything as a service,” or “XaaS.”

Payment terms to tackle after you’ve mastered the basics

These are terms you might not need to interact with daily, but that can still help you get the most value from every customer and create the best experience for them.

3D Secure

An authentication method used by merchants to validate cardholders. The cardholder authenticates their card against the Issuing Bank’s website. The merchant chooses whether or not to use 3D secure, and this is usually done via an iframe on the merchant’s site. This allows the merchant to shift liability from themselves to the issuing bank in some cases. 3D Secure requires cardholder interaction to be completed. For more information, see 3D Secure.

ACH

Automated Clearing House, an electronic network for financial transactions. An alternate payment method that uses the routing and account number for US bank account holders to electronically transfer money to the merchant.

Acquirer (Acquirer Bank)

An acquiring bank is a bank or financial institution that processes credit or debit card payments on behalf of a merchant. The acquirer will either approve or decline a credit card transaction. If approved the acquirer will then settle the transaction by placing the funds into the merchant’s account. The term acquirer indicates that the bank accepts or acquires credit card payments from the card-issuing banks within an association.

Acquirer BIN

This number (typically a 6 digit number) represents the bank identification number within an association. So, if Chase Paymentech is an acquirer, it will have a different bin for Visa than MasterCard. The acquirer bin is used for enabling 3D Secure.

Approval

A result of a transaction that is considered valid and accepted by the Issuing Bank.

Audit

A compliance or financial evaluation that takes place once or more per calendar year.

Auth (authorization)

A transaction type used to authorize that a card is valid, and results in a hold placed on the cardholder’s account for the authorized amount. An authorization response code is later used to capture the authorized funds.

AVS

Address Verification System. Used in fraud prevention on credit and debit card transaction by verifying a cardholder’s billing address.

Balance

The amount a customer owes the merchant. The balance is calculated by adding up all debit invoice items and subtracting credit invoice items (on invoices that aren’t abandoned or voided), and then also subtracting all approved sale/capture transactions, and adding approved refund/void transactions.

Billing Address

The address where the issuing bank mails the cardholder’s monthly statements. Also the address an invoice should be addressed to — which may be distinguished from the delivery address (the address where products may be delivered to.)

BIN (Issuer Bin)

The first 6 digits of the payment card which typically designate the issuing bank. An issuing bank may have multiple bins.

Bitcoin

A cryptocurrency, and a potential alternative payment method.

Category Code

Merchant category code. A merchant category code (MCC) is a four-digit number assigned to a business by credit card companies (for instance American Express, MasterCard, VISA) when the business first starts accepting one of these cards as a form of payment. The MCC is used to classify the business by the type of goods or services it provides.

Check

A bill of exchange where the drawee is the bank. A check, in the US, has a routing number and an account number. It’s written for a specific amount, to a specific payee (or to cash). A check is good for only a single payment.

Consecutive Decline

The number of times a payment card was consecutively declined while authorizing an auth or capture transaction.

Credit

In accrual accounting, a credit is the opposite of a debit. A credit is a positive amount added to an account.

Credit Card

Sometimes used erroneously to mean all payment cards, but it is different from a debit card in that a line of credit is extended to the consumers. More specifically, a consumer is not expected to have funds available for a credit card purchase, and transactions within their credit limit are financed with the expectation of future settlement with the issuing bank.

Currency

A system of money in common use especially in a nation. For example, US Dollar, British Pound, etc.

CVV (cvv2/cvc/cvc2)

A code found on and associated to a payment card used for verification purposes.

Debit

In accrual accounting, a debit is the opposite of a credit. A debit is an amount that is subtracted from an account.

Debit Card

A payment card associated with a bank account that allows a client to pay for goods and services electronically. A debit card is different from a credit card in at least that the funds are automatically debited from the cardholder’s bank account at time of payment authorization.

Decline

A response where the issuing bank declines to approve a payment transaction. A decline can be for various reasons, and it will be accompanied with a reason code, such as: insufficient funds, incorrect billing address or cvv, etc. Head to this post to read more about how to reduce decline rates.

Direct Debit

A payment system whereby creditors are authorized to debit a customer’s bank account directly.

Dynamic Currency Conversion

Dynamic currency conversion (DCC) is the feature to present to the customer the choice to be billed in the original transaction currency or the customer’s native currency.

Dynamic Descriptor

A descriptor is the information that appears in a cardholder’s billing statement to clearly identify the source of a credit or debit card transaction. A Dynamic Descriptor is a descriptor that can be modified on a per transaction basis.

GST/HST

These are Canadian-specific tax terms. “GST” stands for “Goods and Services Tax” and “HST” stands for “Harmonized Sales Tax.” Whether or not they apply (and how they apply) to your business and products depends on what kind of products you’re selling and where you’re based. You can read more about them here and calculate your rates here.

Installment Payments

The legal term for a contract in which a purchaser agrees to pay for goods in parts or a percentage over a number of months. Other analogous practices are described as closed-end leasing or rent to own.

Issuing Bank

The bank that issued the payment card to the cardholder.

Late Fees

Fees a customer may be charged, in addition to the balance due, if their payment is not received by a specific due date. Some merchants allow a grace period before charging a late fee.

Lead Source Attribution

This is simply the process of keeping track of which leads come from where. With Rebilly, you can do this in a number of ways. But even if you’re using a different payment processing tool, you should set up a way to track conversions from different marketing and advertising efforts, so you can adjust your efforts accordingly.

Like for Like

A phrase that means processing and settling in the same currency.

MCC

Merchant category code. See Category Code for full definition.

MIDs

A merchant account identifier.

Net Payment Terms (Net 15, Net 30, Net 60, etc.)

These are typically stated on an invoice (or contracts related to services/payment) and communicate the expected timeframe of payments. The number in a net payment term is how many days payment is expected to be received in. For example, if an invoice is issued with “Net 15” payment terms, and it’s issued on the first of the month, it should be paid on or before the 16th of the month.

PAN

Payment account number (also known as the credit card number of debit card number) — typically 12-19 digits long. The PAN must be protected per PCI Compliance.

Partial Payment

Different from an installment payment, a partial payment represents a customer who has paid any amount less than the balance due. The merchant may be expecting a partial payment, or may not be expecting it.

Paysafe Card

An alternate payment method that is a prepaid online payment card.

Prepaid Card

A payment card that has funds loaded to an account prior to it being used, and will work just like a credit card. Some prepaid cards are reloadable, and some are not (those are disposable).

Processor

Typically used interchangeably with Gateway or Acquirer; however, it actually describes the communication transport mechanism between the Acquirer’s platform and the actual card scheme networks such as VisaNet.

Purchase Order and Purchase Order Number (PO Number)

A “purchase order” is an official confirmation of a purchase. It’s different from a receipt or invoice in that it’s typically sent to the vendor by the customer, and includes not only an itemized list of what’s being ordered, but often includes the person authorizing the order, the delivery address, and any other pertinent details. The “Purchase Order Number” is the number given to the purchase order to track it in bookkeeping, etc. Purchase orders are more commonly used in B2B transactions than B2C ones.

Reconciliation

The process of checking merchant account statements (from merchant’s processor/acquirer) against actual deposits (in corporate bank account) against sales records (in your subscription billing management tool – for example, Rebilly.)

Refund

A refund removes funds from the merchant and transfers them back to a customer. A refund is similar to a void, except a void must happen before settlement of funds.

Representment

The term used for the merchant’s reply to a chargeback with evidence to support its original charge (formally known as presentment).

Reserve

The amount of funds an acquirer withholds from a merchant, usually in a specially designated reserve account. The purpose of the reserve is risk mitigation for the processor. The reserve amount may be nothing, a flat amount, or a percentage of transactions. The reserve may also be a rolling reserve, in that the amounts in the reserve are released after some period of time. A typical period of time for a rolling reserve may be six months.

Restrictions

Settings to be applied to a coupon that restricts the coupon’s use to a specific set that the user controls.

Retention

The continued use or payment of a good or service by a customer.

Retrieval (aka information request)

The process where an issuer requests information about a transaction through the card association to the acquirer, which passes it onwards to the merchant. A retrieval usually precedes a chargeback.

Setup Amount

A fee charged to a customer for setting up a new subscription. Usually a one-time charge.

Tailored Pricing

The ability to create unique prices specific to a customer or group of customers for specific products or product bundle. A merchant may wish to charge two customers different prices for the same exact product. This pricing strategy is very common in SaaS models.

Tokens

A one-time use string that represents a customer’s payment card details. A token expires within 24 hours.

Webhooks

An HTTP request to a merchant defined url notifying the merchant in a programmatic way of certain events, such as: a new transaction, a new subscription, a new invoice, etc.

Wire

An alternate payment method. An electronic transfer of funds. Wire transfers typically transfer money from one bank account to another.

Use your new vocabulary to build a strong subscription business

Now that you know the subscription billing lingo, it’s time to continue to make smart subscription billing decisions. If you’re looking to start a subscription business or want to make sure you’re on the right track, check out our Six-Month Success Checklist. Download it today and set yourself up to win: