Recurring Billing

10 Reasons Friends Don’t Let ‘Exit-Strategy-Minded’ Friends Build Recurring Billing Systems

Mark Cerullo | February 26, 2019

It isn’t easy to build a successful e-commerce business. It’s even more difficult to decide on a strategy to bill your customers on a recurring basis. Prior to becoming the Director of Product for Stax Bill, I worked with SaaS-based subscription businesses for almost 15 years. During this time, it wasn’t uncommon for my monthly new customer count to range in the tens of thousands.

Along the way, I’ve observed many homegrown recurring billing systems at work. Recurring billing was often seen as restrictive, inflexible, and not user-friendly. On top of that, adding products or plans was tedious, usually involving one or more valuable development resources.

In recent years, I had the unique advantage of being involved with procurements in one company’s mandate to grow through acquisition. This meant migrating thousands of customers onto our product and billing platform.

Tedious at best, our manual billing system only became increasingly problematic as we started to scale. Each acquired business had its own unique catalog of products. This was intrinsic for bringing more value to the parent company, while also growing their customer base quickly.

Through the acquisition process, I started to notice a pattern in the billing systems—every acquired business had its own homegrown version of recurring billing, each with its own challenges.

It yielded many problems that surfaced during the due diligence process.

No matter what kind of standardized reporting we asked for—whether it was billing reports, revenue reports, aging reports or churn reports—they were ill-equipped to generate this information.

The common denominator was their rudimentary billing systems. None were using a SaaS cloud-based subscription billing provider.

While frustrating, it was not completely surprising. Startups often use their own form of billing. But as they start to scale, they fail to make the transition to a proven recurring billing platform as their customer base expands.

Many fledgling businesses focus on product features and growth. While keeping up with the market is crucial to a company’s growth strategy, it is not the only component that needs attention. Their billing system requires scaling as well, but it isn’t always deemed essential.

During due diligence, I found many lost and missed revenue opportunities, simply because a recurring subscription billing platform had gone mostly ignored over the years.

Drawing from these experiences, here are ten reasons why I would never let a friend build their own subscription management and recurring billing system.

1. Total amount billed doesn’t add up to usage or resource consumption 

This can be measured by comparing the usage consumed versus the amount that was billed out.

When a company is in start-up mode, a lot of deals get struck in the early days. For example, when a partnership is being created, there is often an exchange of free services. Those exchanges are very often not monitored, or sometimes forgotten.

There are times when a partner is hammering the system with API (Application Programming Interface) calls, for example. While IT and operations can see that activity, the billing side isn’t capturing that usage—often because these deals were made before a billing system was even in place.

It’s eye-opening when a potential acquisition finally reconciles their books and customers, only to discover hundreds of thousands of MRR dollars lost to this revenue leak.

2. Homegrown billing systems are inflexible

As mentioned before, one SaaS company I worked with grew by acquisition. However, every time we acquired a new business, we needed to rationalize all the billing plans to ensure they would flow with our billing system.

It proved frustrating even when an acquisition did something well, such as a tiered pricing model. Imagine trying to implement a tiered recurring monthly subscription plan on a system that has no concept of usage tiers. Too often, we had to explain to the new acquisition that we would have to change their pricing plans because we couldn’t accommodate their billing practices.

Agile billing is key to any subscription management platform. A robust SaaS recurring billing platform supports multiple pricing models, and offers all types of billing scenarios, including upgrades/downgrades, frequency changes, coupons, proration add-ons, etc.

3. Recurring billing activity is not being monitored for problems within homegrown platforms

Businesses that have custom billing plans in place can struggle to manage unpaid invoices. Subscription billing platforms solve this problem with a process known as dunning management, automatically retrying failed credit card payments and sending reminder messages that a payment is past due.

Early revenue recovery or customer lifecycle messaging can be a huge hassle. With a custom billing system in place, a business must continually monitor for revenue recovery, opening themselves up to the possibility of lost revenue.

Churn rates are also higher when businesses don’t have a good system for following up on failed payments. If a customer does not receive notifications that their credit card failed or their payment is late, their subscription is often cancelled with seemingly no warning.

Many homegrown systems never build in a single retry on credit cards into their systems, never mind online portals where customers can update their expired cards.

Subscription management platforms with revenue recovery modules can recover an average of 10-15% of potentially lost revenue, often just from credit card expires and retries.

How customers are being treated by your recurring billing system is highly relevant to their experience. Messaging and transport mediums are constantly changing. Let’s face it: In this subscription-driven economy, customers expect to be messaged differently than they might by a manual billing system which is not flexible enough to accommodate all the ‘touchpoints’.

It’s critical to consider billing communications as a part of the product experience. Frequency of messages and message mediums are key to customer lifetime value and revenue recovery.

4. Homegrown billing platforms are susceptible to ‘jury-rigging’

Salespeople, by nature, are driven to bring in customers. Even if something cannot be easily done, such as a price, plan, or term modification—sales will find a way to make it happen.

For companies with homegrown recurring billing systems, this usually means a manual set of overrides for custom plans. Billing agents will sometimes leverage unused fields in customers’ billing profiles to store information not intended for that field.

Generally, revenue generated through these avenues can show up as unknown or uncategorized. These ‘unsupported’ packages can result in refunds, credits, or reversals that are perfectly justifiable. Without proper tracking they may be hard to explain, and are often difficult to manage and maintain.

In many cases, I’ve seen usage within businesses climb over the years, but their hacked-in pricing remained static in the system. Rigorous due diligence reporting provided by a recurring billing platform can unearth many upsell opportunities within these product catalogs.

5. Incomplete recurring billing systems feature processes that diverge from business expectations

Often, to save time, some homegrown billing systems will tightly couple billing features with their product. New custom billing features may be introduced for a segment of users that are not intended for a different customer profile.

During one acquisition, we found a specific business case implementation for a customer that needed to pause its membership and subsequent billing, so they customized the platform accordingly. However, the development team only completed a small percent of the project, and didn’t realize that the pause feature could also be used by their other, smaller customers.

Consequently, a large segment of customers figured out this loophole and turned their recurring billing into a pay-per-use system. Revenue quietly disappeared off the bottom line.

The business lost approximately 40-50% of recurring revenue, representing thousands of churned-out or non-active customers who should have been paying monthly subscription fees.

6. Custom billing systems make subscription changes and exceptions difficult to manage

E-commerce and subscription billing businesses with different pricing levels often have customers that want to upgrade or downgrade their subscription. With a homegrown billing system, this can prove to be very difficult to manage.

Prorating plans is especially difficult in many recurring billing platforms. Even if proration is implemented, it might not be fully applicable across the platform. The billing agent often must manually adjust the account appropriately. When the agent is under time constraints, it’s easy to ignore missed revenue.

Exceptions can be equally problematic with a homegrown billing system. For example, there was a large enterprise customer that had his entire system shut down because of a small unpaid invoice. That customer’s business was primarily a weekend business. Unfortunately, when he called the weekend support staff, they didn’t have adequate tools on the billing side to fix the issue.

Consequently, the business struggled with reinstating the account, piling on the frustration for the accidentally-cancelled customer.

The issue was resolved, but in a case such as this, customer dissatisfaction is inevitable. The customer may have decided to absorb the glitch, but it wouldn’t be surprising for someone in that position to give serious thought to whether or not to continue with that business or go to the competition.

And if a glitch reoccurs, this customer will almost definitely cancel the contract.

7. Recurring billing with homegrown systems becomes problematic when billing in different currencies

When a business first starts up and is billing locally, a custom billing system can manage it. When the business expands, however, billing in different currencies and through different payment gateways becomes exceedingly challenging. There are also many other things to consider beyond currency conversions, such as the different financial characters within a product.

This can slow expansion into new markets, even if a product was ready to be sold there.

Once a business scales to capture international currency with multiple tax profiles, it generally triggers a redesign of the system, or replacing the billing system with a comprehensive subscription management and recurring billing software.

8. Billing runs with custom systems become difficult to test and maintain

Markets are constantly changing, and products regularly shift their market focus.

Changes can be stressful to implement even on the most sophisticated billing systems. Imagine how scary they can be on a custom-built billing system that needs developers to make the necessary changes to support your growing business. Developers’ primary functions should be focused on product, not billing.

As your business matures, pricing models and packages change, others are no longer supported, and new taxes with new logic are introduced. Some customers may have usage-based billing while others have monthly recurring fees. Custom hacks may have been implemented for one or more large customers. Code may be written and supported on legacy platforms.

Consequently, testing all legacy plans plus new functionality becomes extremely tedious.

Then, once the system goes live after a release, it’s difficult to really be able to say whether or not you’ll get a “clean” billing run across your entire customer base. If the numbers don’t add up, you may have just committed a large portion of your entire team—from support to sales to development—in helping fix the customer billing crisis at hand.

9. Security and compliance / audit trails are hard to track with homegrown billing systems

Growing companies know it is essential to avoid data breaches and maintain today’s compliance standards. Initially, billing interfaces are implemented on one single user interface, but as the company grows, permissions must be restricted to essential users tied to a specific duty or department.

Developers get busy focusing on other features, and security often falls by the wayside. Although there are certainly intentions to fix it later, it rarely gets done, and the security measures may not be PCI compliant.

To complicate matters even more, the audit trails and logs are rarely available in the system.

With these concerns in mind, bringing the system up to necessary security standards often means fully redeveloping the infrastructure and integrating a recurring billing platform.

10. Billing and account systems are working independently

Too often, a business’s billing system is separate from the accounting system. For example, the accounting clerk in a business may be inputting customer contracts and volume usage into QuickBooks or NetSuite, but almost none of that information is being reflected in the billing system.

Conversely, information that has been set up in billing may not be mirrored in accounting. It can be a nightmare years later to reconcile these systems.

With a complete subscription management and recurring billing platform, these two systems are synchronized so that data flows cohesively between them. When that happens, you can easily track information like general ledger transactions and contracts.

Stax Bill, for example, is in the unique position of incorporating the double entry accounting system into their billing platform since its inception.

Essentially, when a charge is applied, it notes the charge as a credit in the accounts receivable (A/R) department, while also tagging that same charge as a debit to deferred revenue, a critical focus for e-commerce and recurring billing systems.

As a business grows and continues to use their homegrown billing strategy, they are unable to compete with changing market demands—forget about billing in tiered, metered or other formats.

When standard accounting and billing practices are incorporated, such as implementing an automated subscription management and recurring billing system, a business strengthens its marketability to potential buyers. By having your financial information in order, you increase your business’s perceived value and strengthen your potential exit strategy.


Written by:

Mark Cerullo
Mark Cerullo
Director of Growth, Stax Bill

As the Director of Growth at Stax Bill, Mark has spent the past 15 years working in the high-volume SaaS industry, leading teams in sales, marketing, and product. Mark’s expertise includes driving companies into higher growth sectors for profitability, increased revenue, and acquisitions combined with a strong focus on customer experience.