A dating app, the New York Times, Spotify Premium, a Gym membership, Apple iCloud — the one thing that unites all these subscriptions?
A recurring bill.
On the surface, it might only look like recurring billing as a concept is only exclusive to financial transactions for matters of convenience or customer experience.
But the truth is that its role certainly transcends all across the spectrum. Today, it significantly touches business strategy, product roadmapping, customer experience, technological integrations, among others.
What is recurring billing and how it works
Recurring billing is when a company regularly charges a customer for things like subscriptions or memberships.
This happens automatically, like every month or year, without someone having to do it manually each time. Once it is all set up, the customer's account gets charged on its own during these set times, unless they decide to change or cancel their subscription.
The real essence of recurring billing lies in its automated nature, designed for subscription-based products and services. The model stands in stark contrast against the conventional one-off transaction model, making a major shift towards more sustained customer relationships, besides a steady revenue stream.
The typical process in recurring billing includes a symphony of multiple layers and steps.
- At first, the customer enters a service agreement with the provider for a subscription. The agreement comes with clearly laid out payment intervals and the total number of payments in a year.
- Once the customer's payment details are secured, the billing system takes over and processes payments at each of the predetermined intervals.
- These transactions are not only automatic but also transparent, with customers receiving timely notifications and receipts.
- A recurring billing model also accommodates flexibility, allowing for modifications, upgrades, or cancellations as per customer preferences.
In all fairness, the Recurring Billing landscape today has not arrived where it has, without the due credit being given to the role of technology. Especially over the past two decades, software tools have turned its place around dramatically — with the singular goal to amplify customer satisfaction by manyfold.
How far along technology has taken Recurring Billing today?
The landscape of recurring billing has undergone significant transformation due to various technological advancements. These advancements have not only streamlined the billing process but also enhanced customer experience and provided businesses with better tools for managing subscriptions and payments.
Here's an overview of the key technological and software developments in the field of recurring billing —
- Automation of billing processes — One of the most fundamental advancements is the automation of the billing cycle. New-age software now automatically handles repetitive billing, ensuring timely and accurate charges without manual intervention. This automation extends to invoicing, payment processing, and updating customer records.
- CPQ integration with CRM and ERP — CPQ (Configure, Price, Quote) software is often integrated with CRM (Customer Relationship Management) and ERP (Enterprise Resource Planning) systems, allowing for seamless information flow across sales, finance, and operations. This integration helps in streamlining the sales process, reducing errors, improving efficiency, and enhancing customer satisfaction by providing quick and accurate responses to inquiries and orders. (CPQ software in the business and sales domains, helps companies accurately define the price of goods across a vast and constantly changing spectrum of variables)
- Flexible subscription management — Today's recurring billing software offers extensive flexibility in managing subscriptions, that includes the ability to handle upgrades, downgrades, prorations, add-ons, discounts, and trial periods. Such flexibility is crucial for businesses that offer varied and customizable subscription plans.
- Compliance and secure payment gateways — Enhanced security features and integrations with various payment gateways have been a significant focus. Modern systems adhere to stringent security standards like PCI DSS to ensure the safe handling of sensitive payment information. Compliance with global and regional financial regulations is also a critical feature of these systems.
- Cloud-based platforms — The shift to cloud-based recurring billing platforms has enabled businesses to scale more efficiently, reduce costs associated with hardware and software maintenance, and improve data accessibility and collaboration across different departments.
- Data analytics and reporting — Advanced analytics capabilities are now a staple in recurring billing software. These tools provide businesses with valuable insights into billing efficiency, revenue trends, customer churn rates, and other critical metrics. Customizable reporting features allow businesses to analyse and understand their subscription models better.
- Cross-platform compatibility — With the increasing use of mobile devices, recurring billing systems have adapted to be mobile-friendly and compatible across various platforms and devices. This ensures that customers can manage their subscriptions and make payments conveniently from any device.
These technological advancements reflect a broader trend towards more customer-centric, efficient, and secure billing practices.
As businesses continue to embrace digital transformation, it is likely that recurring billing systems will continue to evolve to meet the changing needs of both businesses and their customers.
Advantages of recurring billing for SaaS companies
We live in an era today where convenience and consistency are paramount. In this environment, recurring billing emerges merely not as a trend alone but also as a fundamental shift in the way businesses operate and interact with customers.
One of the most important advantages of using recurring billing models is that they are highly scalable in nature. They can easily accommodate a growing customer base without a significant increase in billing management workload.
Before recurring billing models came in, there was a culture of heavy upfront software license fee for software, along with a low maintenance fee. This culture was bound to only incentivize the sellers in the wrong ways, but never the buyers for the real value of the product.
Besides, it also came with plenty of edge-cases that the software did not solve for the buyers. There were often bugs, poor after-sale services, and messy features. Because the buyer did not have to pay any more costs after the software license fee, it was convenient for the sellers to not offer any superior ongoing experience for the buyers.
After subscriptions became mainstream, customers now have more power — to be able to cancel the subscription if things are not working out in their favour. This compels companies to ensure that their products and services are bundled with sustained value consistently.
Here are a few other advantages to using the recurring billing model for businesses of today —
- Consistent revenue stream — Businesses could enjoy steady and predictable revenue channels, assisting in better financial planning and stability.
- Low entry barrier for adoption — Recurring billing acts as a low entry barrier for businesses of all sizes to easily adopt subscription models. It encourages innovation by allowing companies to focus on core offerings over complex billing infrastructure.
- Convenience — Nobody likes manual intervention in 2024. Recurring billing offers convenience for both businesses and customers, reducing the hassle of repetitive manual payments.
- Improved cash flow management — Regular and predictable payments lead to effective cash flow management.
- Automation reduces errors — Automated billing reduces the likelihood of billing errors or human errors, thereby enhancing overall efficiency.
What are the challenges in recurring billing?
One of the rather large problems with the B2B or enterprise industry is that — more often than not, in an attempt to increase net revenue retention (NRR), a seller would have to invest plenty of time, effort and money while re-negotiating contracts. This involves having to go through numerous approvals and processes before an uplift is even possible. To be able to solve this conundrum, enterprises go on to opt for recurring billing with usage-based pricing (UBP), instead of (or) in addition to a subscription-based pricing.
While Recurring Billing offers numerous benefits to Software as a Service (SaaS) companies, it also comes with its own set of challenges. These challenges can affect both the provider and the customer if not managed properly.
Understanding and addressing these issues is crucial, in order to maintain a smooth billing cycle while also ensuring customer satisfaction. Here are some of the challenges and how to try and solve them —
- Complex billing scenarios — SaaS businesses often offer multiple subscription tiers, add-ons, usage-based pricing (UBP) models and discounts. Managing these complex billing scenarios can be challenging, especially as the business grows. Ensuring accuracy in billing for a customer's specific plan, the usage, besides any changes to the subscription — requires a robust and flexible billing system.
- Customer churn —While recurring billing can enhance customer retention, it can also lead to increased churn if not handled correctly. Unexpected charges, billing errors, or a lack of transparency can irk customers, leading to cancellations. Additionally, customers might churn if the process to cancel subscriptions is overly complicated or if they feel trapped in a subscription they no longer need.
- Payment failures — Recurring billing relies on automatic renewal of subscriptions, which can easily be disrupted by payment failures. Expired credit cards, insufficient funds, or bank declines are common reasons for payment failures. Managing these failures requires a process to update payment information, communicating with customers to resolve payment issues promptly.
- Customer communication — Effective communication with customers about subscriptions, renewal notifications, price changes, or terms of service updates, is imperative. Failure to communicate clearly can lead to customer dissatisfaction and dispute. Establishing transparent communication practices is essential to maintaining trust and reducing churn.
- Updating subscription details — Customers' needs change over time, requiring upgrades, downgrades, or add-ons to their subscriptions. Handling these changes seamlessly, without disrupting the service or billing cycle, can be challenging. SaaS companies need a flexible billing system that can easily accommodate these changes at any time during the subscription period.
- Privacy and security — Handling recurring payments requires storing sensitive customer payment information. Ensuring the security of this data and protecting against breaches is a significant challenge. SaaS companies must implement robust security measures and comply with data protection regulations to safeguard customer information.
Diversity in different types of recurring billing
Owing to the complex landscape of modern business, customer preferences and consumption patterns are often quite varied. Besides, there is also quite a bit of contrast in the way different customers would derive their desired value from the same product or service. This complexity compels for a very tailored approach to pricing. The flexibility in billing not only caters to the specific needs of customers, but also enables businesses to optimise their revenue streams and enhance customer satisfaction.
Besides, evolution of technology has played a critical role in enabling businesses to implement and manage these varied billing strategies. Advanced billing systems can now handle complex calculations and variable billing cycles, making it easier for companies to offer personalised billing options.
Here are some of the different types of recurring billing — Fixed recurring billing, variable recurring billing, usage-based billing (UBP), tiered billing, per-unit billing, subscription billing, freemium billing, add-ons and overages
Understanding these detailed facets of recurring billing models enables businesses to craft more nuanced and customer-centric billing strategies. It also helps customers make informed choices about their subscriptions, ensuring their needs are met while fostering transparency and trust in the business relationship.
“Could I build an in-house billing system?”
The genesis of an in-house billing system often takes place at a stage when a company serves a small client base, typically fewer than ten, requiring immediate invoicing. It goes to say that evaluating a billing tool rarely makes it to the list of top priorities.
“With heavy engineering muscles, organisations would not think twice before taking the plunge to build an in-house billing system.”
Read More: Problems with In-House Billing Systems
Usually, a developer is assigned the task to quickly craft a simple solution to produce these initial invoices, ensuring timely payment. This setup is typically concocted in haste, involving a reluctant investment of a developer's time aimed at immediate functionality over perfection.
However, this method of creating billing software tends to overlook the long-term implications of such ad-hoc development. The decisions made during this rushed phase, often unbeknownst to the broader team, pave the way for future operational inefficiencies and elevated costs for the organisation.
Before choosing a billing tool, here is a framework to evaluate your current billing processes and requirements.
- Consider who in your organisation will use the system, from contract initiation and invoice issuance to usage tracking and payment follow-ups.
- Assess their technical proficiency to determine the need for automation and user-friendly features.
- If your pricing is usage-based, ensure the tool can handle metering and integrate usage data effectively.
- Decide whether you need support for prepaid, postpaid, or both billing types, and consider the tool's automation and dunning capabilities.
- Finally, ensure the billing system supports your accounting workflows and complies with regulatory standards.
Summing up
Having said all of this, the key to success for an enterprise lies in finding a billing system that not only meets today's needs but also proactively prepares for tomorrow's challenges. Zenskar is a perfect fit, offering more than just a solution for your current billing demands.
With Zenskar, you are equipping your business for the future, utilising a platform that is not only powerful and secure but also intuitive and scalable. It effortlessly aligns with the shifting landscape of billing and pricing strategies. Embrace simplicity and eliminate the need for complex software development as you streamline and automate your billing for various contracts and pricing schemes with Zenskar's top-tier offerings.
To find out how Zenskar could help you move away from DIY billing processes and implement a scalable, robust billing system, book a demo with us.
