Recurring Billing

Everything You Need to Know About Recurring Billing Automation, Explained

Tyler Pranke | September 6, 2022

Is your accounts receivable (AR) team constantly swamped with manual invoicing, billing, and revenue recognition tasks? Are you hemorrhaging money by paying them all overtime? Are they begging you to look into a tool that can help?

Don’t worry, this is a more common situation than you’d think. If this sounds like you, you’re in the right place. And we’re here to help.

One of the biggest growing pains for SaaS subscription businesses is when the manual billing processes that worked great and were totally manageable in your startup phase become Sisyphean tasks for your accounts receivable team as you scale and gain more customers.

Fortunately, an automated recurring billing solution can take over rolling that proverbial boulder—instantly, automatically, and with virtually no mistakes. Plus, it frees up your AR team to work on more strategic projects that’ll help grow your business. And no more dreaded overtime!

That’s a win-win if I’ve ever seen one.

Now, let’s discuss in more detail exactly how recurring billing automation can benefit your business.

Benefits of recurring billing automation for a subscription business:

Save time on repetitive processes

Tedious manual SaaS subscription billing processes can take days or even weeks (!) to complete each month and can even require AR staff to work overtime on a regular basis. But a modern recurring billing model can free up the finance team to work on more strategic business growth projects rather than spending a huge chunk of time churning out invoices.

Case in point: JustLogin, a leading cloud-based HR software solutions provider, used to spend two weeks—plus overtime—manually sending each round of invoices to all of its customers.

Now, the business has adopted an automated recurring billing platform and as a result, it has reduced time spent on billing by 90% and scaled by 3X—without hiring any additional staff. Most of its invoices are now automatically sent out by the stroke of midnight on day one.

Save money and plug revenue leaks

Time is money, as the adage goes, so naturally, the above-mentioned time saved from implementing automated subscription billing translates to money saved as well.

However, that’s not the only way a modern recurring billing platform can save your SaaS subscription business money.

A holistic subscription management solution is equipped to handle even the most complex billing calculations. And, since the whole process is automated, the possibility of human error is virtually eliminated. This means a better experience for your customers in terms of less confusion and disputes regarding recurring payments.

When billing errors are made (especially more than once), customers are more likely to churn in favor of one of your competitors that can get it right–likely, one that uses a streamlined, automated billing platform.

Finally, and perhaps most importantly, the right recurring billing platform will have extra collections features baked in to help ensure your invoices are actually paid.

When your AR specialists are bogged down simply getting invoices out, following up on outstanding balances can fall by the wayside. Features like automated dunning communication, automatic payment retry sequences, and credit card auto-updating can make a big difference in the amount of revenue your business actually gets to keep. In fact, we often see businesses recovering between 2% and 4% of their monthly revenue thanks to these types of automated collection processes.

But some businesses see even better results. Backend as a service provider, BitHeads, began recovering 5%-10% of its monthly revenue from recurring payments after automating its collections process.

Go-to-market asset

An automated recurring billing solution can also be an invaluable go-to-market asset. Specifically, it can streamline all of your SaaS subscription management processes and increase your speed to market, allowing you to stay ahead of your competitors.

More often than not, whichever business brings something new to market first will own the largest market share. As the folks at Velocity Global outline, “When you enter the market at a rapid rate, you can attract a larger customer base. As a result, you can establish loyalty before your competitors. This will pay off in long-term gains as new companies enter the market.”

So, speed and agility are essential, especially in the crowded SaaS subscription space.

Often, businesses working with outdated legacy software or subpar homegrown solutions need to bring in a team of developers just to add a new product or bundle to their catalog, likely losing sales to competitors who were more agile and got there first.

Additionally, with a clunky legacy billing software, it can be very difficult to address the ever-changing demands of customers in real time. Creating a custom plan typically requires adding an entirely new product or service listing, or using a suboptimal billing workaround that can interfere with your data and analytics.

But, with an agile billing solution, you can take advantage of catalog flexibility to easily and quickly launch new products and services, efficiently bundle your offerings in attractive ways, test multiple pricing models simultaneously, and effortlessly create custom pricing plans.

Sales and marketing advantage

Typically, SaaS subscription businesses silo into various departments the same as traditional businesses, with separate teams for marketing, sales, accounting, and so forth. While of course this division of labor allows for specialization and efficiency, it can lead to a lack of cohesion between departments—a classic example of the left hand not knowing what the right hand is doing.

This can be particularly detrimental in a recurring billing business model. For SaaS subscription businesses, the sales and marketing processes are ongoing. Customers develop long-term relationships with the sales, marketing, and billing departments.

As such, all three departments need to work together symbiotically.

One of the easiest ways to enable this alignment is with a comprehensive modern subscription billing management platform, which provides:

  • Real-time metrics and analytics on demand to all departments. Easy access to these metrics can lead to better decision-making company-wide, which I’ll get to later in this article.
  • Customer access can be automatically blocked in the case of delinquent payments, and easily unblocked when payment is collected. That way, when the sales team warns a customer of consequences, everyone is on the same page and can enforce the block uniformly.
  • The marketing and sales departments can easily implement coupons, discounts, free trials, and so forth without having to depend on the billing department or the dev team to handle it.
  • Customer experience is improved when everyone within your business has access to the same facts and figures. It minimizes conflicting information and confusion.

Information security

With so many recurring payments, it makes sense to store your customers’ payment information so invoices can be paid automatically without any action on their part. However, there are stringent regulations in place regarding how this sensitive information must be stored and secured—the Payment Card Industry (PCI) has outlined a Data Security Standard that features 12 core data security requirements (and over 200 sub-requirements).

Business owners have the option to create their own virtual credit card vault, although DIYing a vault that fails to comply with PCI requirements can result in serious penalties, including fines of up to $100,000 per month, lawsuits, bad press, and potentially even being completely banned from operating the business.

There are also some businesses out there that, unfamiliar with PCI requirements, use manual billing and store customers’ credit card information in Excel spreadsheets. This is, unsurprisingly, not compliant whatsoever and can result in the same penalties as a non-compliant vault. Yikes.

As you might guess, the Excel spreadsheet/DIY vault route is not a risk that many SaaS business owners should be willing to take.

Fortunately, you don’t have to—you can outsource your credit card vault to a third party, such as a recurring billing system that has a PCI-compliant vault baked in. You can leave cybersecurity to someone else and spend your valuable time and resources on what you do best.

Simplify compliance

The implementation of the Accounting Standards Codification (ASC) 606 revenue recognition requirements in 2019 greatly complicated the process for subscription businesses. So much so, in fact, that as a SaaS business scales, it can quickly become virtually impossible for an accounting team to keep up with manual revenue recognition.

So, what to do?

The simplest way to solve this quandary is to automate your revenue recognition. Select a system that handles your billing, invoicing, receiving recurring payments, and revenue recognition. Again, this frees up your finance team for other projects and virtually eliminates errors that might lead to accidental non-compliance—which, like PCI, can come with hefty fines and even jail time.

Better decision-making

As I briefly mentioned above, an automated subscription management platform provides a wealth of data and analytics, including reports on sales, monthly recurring revenue (MRR), earned revenue, cash flow, customer value, churn rates, and more.

This information allows for data-driven decision-making (DDDM). Everyone within a business can benefit from DDDM, from executives making high-level business decisions to sales and marketing teams as they craft messaging.

Lean into recurring billing automation or risk being left behind

An ongoing digital transformation strategy that strives for constant improvement is a non-negotiable for subscription-based SaaS businesses who wish to stay relevant. While most digital transformation efforts to date have revolved around more glamorous front office processes like sales, marketing, and customer success, it will soon become imperative to apply the same tenets in your back office.

Investing in a customizable, agile, and automated billing mechanism will help make your SaaS business scalable and keep you ahead of the competition.

Written by:

Tyler Pranke
Tyler Pranke
Business Development Representative, Stax Bill

Tyler a former member of the Business Development team at Stax Bill. He has over 7 years in the hospitality industry before making the jump into the SaaS industry. In his free time, he can be found somewhere on the golf course. Tyler now works with potential prospects to help find the right solution for their recurring billing needs. From small start-up companies to large enterprise companies, he makes sure that Stax Bill can meet and surpass all their needs.