Financial Literacy

Financial Literacy and Auto-Renewal Services

Auto-renewal services can be convenient, allowing you to avoid the hassle of remembering to renew your subscription each month or year. However, some companies use this feature to make money off of consumers.

To minimize legal exposure under negative option laws, TSIA recommends that clients revisit their processes regarding purchase and order acknowledgment, presentation of contract terms, service cancellation procedures and authentication requirements.

Financial Literacy

Financial literacy is a set of skills that allow an individual to make informed and effective decisions with their personal finances. Common examples include preparing budgets, deciding how much to save, evaluating the tradeoffs between different credit and investment products, and understanding how to manage debt.

Auto-renewal services are a common way to provide convenience to consumers, but they can have a detrimental effect if not managed properly. The good news is that financial literacy can help individuals avoid the mistakes that can lead to high-interest rates, late fees, and unsustainable debt.

In the education sector, there are several ways to build financial literacy, including free resources and classroom curriculum. The University of Arizona’s Take Charge Today program, for example, offers programs and curriculum that incorporate a decision-based approach to personal finance. The GEAR UP Idaho and Jump$tart websites also offer free curriculum with lessons, activities, and resources related to a variety of financial topics.

Billing Cycles

Companies with auto-renewal services generate revenue from their customers on a regular basis. The duration of these billing cycles can vary from product to product and industry to industry, but they typically follow a set pattern like monthly or quarterly. This helps consumers regulate their expectations and provides an internal department (such as accounts receivable) a clear estimate of how much revenue they should expect to collect.

In addition, billing cycles allow companies to establish consistent cash flow. In one instance, a business decreased its billing cycle from 17 days to 10 days. As a result, it received invoice payments on a more predictable basis and saved over $2.5 million annually. The terms of billing cycles vary from product to product, but they normally include payment deadlines and late fees. This enables both parties to keep track of the status of their account and prevents payment delays due to financial hardship or dissatisfaction with the service.

Cancellation Options

For example, a SaaS auto-renewal service may require customers to provide 30 or 60 days’ notice before the contract expires. This can be inconvenient for the customer or difficult to track, especially when there are high-volume contracts.

Moreover, the contract may contain inflexible terms, making it difficult to renegotiate or cancel services that no longer add value. In addition, the ability to renew automatically can make forecasting revenue more challenging, especially for smaller organizations with limited resources and expertise.

For businesses to effectively deploy auto-renewals, they should consider the attributes that enable them to deliver on strategic directives, including effective expansion and customer retention. They also should assess their exposure to state laws regulating negative option plans, including their online purchase flow, sales scripts, and consumer communication practices. These laws generally compel companies to present clear and conspicuous disclaimers about auto-renewal offers, obtain consumers’ affirmative consent, and provide straightforward cancellation procedures.

Payment Methods

In some cases, businesses ask consumers to check a box or otherwise express consent to auto-renewal terms prior to receiving billing information. Then the contract automatically renews for a set number of cycles or on a month-to-month basis after that.

For the consumer, that often means losing an opportunity to review or renegotiate contract terms or simply to check out competing products and prices. It also often means missing the window of time (typically 30, 60 or 90 days) that provides them with a chance to avoid a renewal.

For the business, it means gaining predictable revenue and eliminating risk of lost sales. But implementing auto-renewal services without proper customer communication and interaction can result in improper termination penalties, duplicative vendors and excess spend. When used strategically, with the ability to modify contract terms and quotes, auto-renewal is a powerful tool for growth.