Since you’re here, you’ve probably already heard about the plentiful benefits of a fully automated billing system.
So far, you’re impressed by this intriguing platform. You’ve read about how it sends invoices, applies late fees and other charges or discounts, helps you get paid faster, improves customer satisfaction, and collects real-time data on metrics like churn and acquisition rates.
The bells and whistles sound great. Brilliant, even! It runs circles around your current manual billing process or existing accounting software. But, let’s be frank. It’s the cold, hard cash that you really want to hear about.
This brings us to a few important questions you might have in the back of your mind…
First: How exactly do you set up an automated billing system? And perhaps more importantly, are they even a worthwhile investment? How many dollars can they really help you save?
If these questions have been on your mind, then you’re in the right place, because today, I want to demonstrate why such platforms are beneficial—especially in the software as a service (SaaS) industry for those with rapid growth plans.
Let’s get started.
TL;DR
There are 5 key areas where automated billing can help benefit your business financially when automated: billing, dunning and collections, tax, data entry, and revenue recognition. Assuming your business makes $5 million in ARR with around 100 customers, you could save around $22,813 a year.
Automated billing helps businesses better handle their subscriptions and recurring payments throughout the entire payment lifecycle by automating billing cycles, generating invoices, prorating billing, and even collecting funds.
When looking for a provider, make sure you ensure they’re transparent about features like pricing, customer support, and security and compliance. Check unbiased reviews to help with choosing the best automated billing provider for your business.
First things first, what exactly is automated billing?
Automated billing wears a lot of different hats, like recurring billing software and subscription management software. In a nutshell, what these solutions do is help SaaS businesses better handle their subscriptions and recurring payments throughout the entire payment lifecycle by automating billing cycles, generating invoices, prorating billing, and even collecting funds. An automated billing solution should cover all things billing, like revenue recognition, but takes things a step further to offer a customer-centric approach and stronger financial health.
What are some of the benefits an automated billing solution provides?
There’s a range of opportunities automated billing can offer to streamline your business process and make collecting payments easier, but here are just a few.
- Recurring payments and management: With automated recurring billing, businesses can better predict revenue and improve their cash flow. It’s also perfect for customers, as it reduces the friction around billing. Plus, don’t forget to ensure scalability: as your business grows, your automated billing solution should be able to grow right along with you!
- Analytics and reporting: With real-time analytics baked into your accounting system, you can confidently know what is and isn’t working. A great provider will provide robust data that closely analyzes your key SaaS metrics, and will offer actionable tips and insights to further drive growth and reduce churn.
- Dunning management: One of the most common causes of involuntary customer churn is failed payments. Plus, it also often leads to lost revenue. With a great subscription management platform, you can automatically retry failed payments, communicate with customers, and empower them to make payment updates themselves through the customer payment portal—all which can drastically improve your bottom line.
- Payment integrations: The best automated billing platforms adapt to your way of working, not vice versa. That’s why one of the most sure-fire ways your provider can do that is by enabling your SaaS business to integrate its entire FinTech stack via a custom API your developers can work with.
What features should I be aware of?
While we’ve just looked at some of the pros of automated billing, I want to draw your attention to a few features you should keep your eyes peeled for, since not all providers will put this info front and center. If they don’t, it could be a sign to look elsewhere, so don’t gloss over this section!
- Pricing: Subscription management software can utilize various pricing models, such as usage-based or tiered, but it’s critical that they’re upfront about the total cost of ownership from the get-go. This means you should understand if there are hidden fees like monthly minimum or overage fees. To be safe, opt for an automated billing provider that uses a simple pricing model (ideally a monthly rate) and won’t punish you for growing too quickly in the same billing cycle.
- Customer support: Make sure you determine how easy the platform and dashboard are to use—both for your team and customers. Is onboarding provided? Are there easily-accessible trainings, both live and on-demand if needed? And if something goes wrong, how easy is it to speak to a real human?
- Security and compliance: Data breaches and leaks can cost serious money, as well as irreparable reputational risk. That’s why it’s essential you partner with a payment processor that ensures compliance with all global regulatory standards like PCI DSS standards. Ideally, make sure your partner meets Level 1 Compliance, the highest possible standard. Since you’re here, you’ve probably already heard about the plentiful benefits of a fully automated billing system.
How do you choose the right automated billing software for your SaaS business?
Now that I’ve covered the key benefits and features you should be on the lookout for—don’t worry, we’ll dive into the nitty-gritty and quantify these benefits soon—here’s how to arrive at the final pick.
First, start by making a list of around 4-7 potential providers, based on industry recommendations and your own research. Then, evaluate them based on your own business needs and the factors provided above; this should help you whittle it down to a shorter list. Remember, don’t just think about the now, think about the future of your business: can they grow along with you, for example if you might later want to expand into international markets or could need automatic invoice generation in multiple languages?
Next, look at what real customers have to say about your shortlist of options, checking independent review sites like G2 or Capterra, as this will help provide a full picture of what working with your future partner could be like. Once you’ve narrowed it down further, contact the last few providers on your list for a trial or a demo to see the automated billing solution in action. Then, all that’s left is to choose the final pick and transition to your new provider for automated billing success! Voila!
How much can my business actually save on both time and money with recurring billing automation?
Automated billing systems help with subscription management in a myriad of ways. I’ve identified 5 key areas—billing, dunning and collections, tax, data entry, and revenue recognition (rev rec)—that will benefit financially when you automate processes with the right billing software. We’ve looked at most of these briefly earlier on, but now I want to estimate how much you can save in hard numbers, and to do that, I’ve calculated average monthly savings based on a mid-market SaaS business.
Let’s assume the business in question makes $5 million in annual recurring revenue (ARR) with around 100 customers.
1. Billing and invoicing
The recurring billing model requires frequent invoicing, sometimes for variable amounts. Add multiple subscription options, usage-based plans, and mid-cycle plan upgrades, downgrades, and cancellations to the mix, and you’ve got a seriously complex billing system on your hands.
Often, a business starts out using basic billing software or, God forbid, spreadsheets to manage its intricate invoicing and billing processes.
*Screams*
Not only does this leave a huge potential margin for human error, but it can also be highly time-intensive and a roadblock to growth.
Using an automated billing system designed for recurring billing at scale:
- eliminates the risk of costly human mistakes,
- saves time and resources,
- ensures customers always receive clean, accurate, and branded statements and invoices
- acts as a single source of truth (SSOT) for customer data and documents like invoices,
- enables multiple departments to answer customer inquiries confidently and efficiently
- allows you to see projected invoicing information for better business forecasting
This all contributes to a better customer experience and improved scalability—which is great, but what does it mean for your bottom line?
Reduce your monthly expenses by $800 to $5500+ by automating your invoicing process
We’ve seen as much as a 90% reduction in billing time, but pretty commonly we see businesses free up around 40 hours a month.
Take JustLogin for example, a leading cloud-based HR software solutions provider in Singapore. Billing its 800 customers manually used to take up to three team members two whole weeks, including overtime. Ouch.
Since introducing an effective automated billing system, its billing and invoicing process has been reduced by 90%, to just a few hours!
Let’s translate that to a dollar amount. Say a typical work week is 40 hours, plus 8 hours of overtime. The average salary for billing clerks in Singapore is just over 27 Singapore Dollars (SGD) per hour. This roughly equates to 19.50 US Dollars, which is well within the average range for US-based billing clerks.
That’s a saving of over $5500 (USD) on salaries alone. And that’s not to mention the savings on revenue leakage from forgotten invoices and time spent dealing with billing mistakes.
“Our business has scaled up three times, but we are actually spending less time on billing and more time on the proactive side of the company’s expansion,” says JustLogin’s COO, Chiou Hao Chan.
2. Dunning and collections
Generating invoices and sending them to customers is pointless if they’re not going to get paid. This is why dunning management and payment collections are so important.
Collections activities like following up on overdue invoices for late payments, sending notices to update cards on file, and retrying payments after failed transactions are almost as time-consuming as billing and invoicing.
An automated billing system should have features like credit card auto-updating, automated dunning emails, and automated collection re-attempts to take the work off the plates of your accounts receivable (AR) team.
Automate dunning and collections to save between $8,333 and $41,666
Most subscription-based B2B businesses see a 6-26% payment failure rate, the lower end being for monthly rebills, and the higher end for annual.
This doesn’t include the dollar value of the time spent. However, automating payment collections activities commonly helps businesses put between 2% to 4% of monthly revenue back on their bottom line. Backend as a service (BaaS) provider bitHeads began recovering between 5% and 10% each month after adding automation to its dunning process!
3. Tax calculations
Ah, tax! One of life’s famous few certainties. And if your business serves customers in multiple countries, probably the source of a few headaches. Even taxes in the U.S. can seem like they’re designed to trip you up, like how different zip codes have different tax rates.
For some businesses like CoConstruct, calculating basic taxes at the state level wasn’t enough. CoConstruct needed to get more granular and it was commanding tens of hours of manual work each month. Aside from the time and effort involved, human error in tax calculations was causing the business to leak thousands of dollars every month.
Automated billing software makes handling complicated taxation requirements easy as pie. It can automatically apply changes to taxability rates and rules, track and account for exceptions, and take care of other tax-related tasks that would otherwise eat into your team’s precious time.
So how much money will it save your business?
Given how wildly taxation may vary between businesses, it’s tricky to pinpoint the amount manual taxing calculation costs you. But we can look to real-life examples for guidance. In the case of CoConstruct, the business began putting $2,000 back on its bottom line every month after switching to an automated billing solution.
4. Data entry
Your tech stack includes vital elements—like your CRM, ERP, accounting software, and payment gateway—that need to communicate with each other for optimal efficiency. When your automated billing system integrates with these systems, it allows you to:
- move revenue between earned and deferred ledgers,
- update key reports and financial statements,
- get insight on various aspects contributing to RevOps efficacy,
- better measure key metrics indicating overall business health like customer lifetime value,
- accurately sync customer information between the CRM, ERP, and billing software, and
- reconcile and compile invoices and post payments.
Hello, data integrity! Something you’ll be mighty thankful for if the IRS comes a-knockin’ on your door—but that’s not all. An automated billing system will free up your talented accounting staff to focus on more value-producing projects and strategic growth initiatives. Which equates to…
Money, money, money!
Based on average salary data and assuming a daily time-saving effect of one hour, your business can save at least $560 per month.
Let’s consider the average manual data entry error rate of about 1%. How many hundreds or thousands of fields of data are your staff entering per day? How many times do they move or copy that information to another system or use it in a further calculation?
Now let’s apply the $1-$10-$100 rule. It says that it costs roughly $1 to verify data accuracy at the point of entry, $10 to clean it up (in batch form), and $100 or more if it goes unrecognized or undealt with in the longer term.
It’s not unusual for a SaaS business to generate well over a million journal entries per month. That means errors could easily be costing your business $10,000, or in a worst-case scenario, that number could be as high as $1 million…or more.
5. Revenue recognition
It’s nearly impossible to be compliant with ACS 606 without using automated billing software. The recent update requires you to recognize revenue when the goods or services are delivered, i.e. performance obligations are met, rather than at the initial time of sale.
This is especially complex for subscription billing services as revenue from each customer is often deferred over many months and may not be distributed evenly.
An automated billing system saves you money in IRS penalties and keeps your ledgers clean, detailed, and accurate. This allows your finance team to easily track earned and deferred revenue and plugs any leakage from things like inaccurate refunds.
So how much are we talkin’?
When B2B SaaS company Uberflip switched to an automated billing system to manage revenue recognition and streamline operations, it saved more than 40 hours per month, or roughly $1,120 in employee wages, going by average salary data for US accountants.
Improper revenue recognition can lead to financial reports that show more or less profit than is actually true. This can affect monthly and annual targets, influence shareholders and investors, and ultimately attract public scrutiny. The financial impact of this is incalculable.
How much money does billing automation really save?
So here we are. A final drum roll, please!
An automated billing system could save somewhere in the region of $22,813 every month, though that figure could easily stretch to $50,000 or more. This is based on an ARR of $5 million, or $416,666 in monthly recurring revenue (MRR).
A suitable automated billing software solution for a mid-market SaaS company costs $499 per month. So for every $1 spent on the automated system, you’d be looking at an average return on investment (ROI) of between $45 and $100, but potentially even more.
Now that’s what I call a no-brainer!
Are you ready to take your business to the next level? Contact us at Stax Bill to get started.
FAQs about Automated Billing Systems
Q: What are the benefits of automated billing systems for businesses?
Automated billing systems provide numerous benefits to businesses. They eliminate the risk of costly human errors, save time and resources, facilitate more efficient customer inquiries, streamline recurrent billing processes, and allow for better business forecasting.
Q: How does an automated billing system enhance financial efficiency in a business?
Automated billing systems drastically reduce billing time and facilitate a faster payment process. Businesses opting for automated billing have seen up to a 90% reduction in billing time, freeing up many hours each month that can be spent on other productive areas. It also eliminates the chances of forgetting invoices or dealing with billing mistakes, thus preventing revenue leakage.
Q: What is the estimated savings an automated billing system can offer to a SaaS business?
Based on the analysis of a mid-market SaaS business generating $5 million annually, an automated billing system could save around $22,813 every month. However, this saving could easily stretch to $50,000 or more. For every dollar spent on the automated system, you’d be looking at an average return on investment (ROI) of between $45 and $100, but potentially even more.
Q: How does an automated billing system benefit the customer experience?
An automated billing system ensures customers always receive clean, accurate, and branded statements and invoices. It acts as a single source of truth (SSOT) for customer data and documents like invoices, enabling multiple departments to answer customer inquiries confidently and efficiently.
Q: What impact does automated billing have on taxation processes?
Automated billing systems drastically simplify complicated taxation requirements. They automatically apply changes to taxability rates and rules, track and account for exceptions, and handle other tax-related tasks that would eat up your team’s time.
Q: How does automated billing contribute to revenue recognition?
Automated billing systems help you comply with updated accounting standards, which require revenue recognition when the goods or services are delivered. This is complex for subscription-based services, as revenue from each customer is deferred over many months. An automated billing system keeps ledgers clean and accurate, allowing for easy tracking of earned and deferred revenue.
Q: How does automated billing software integrate with other systems in a business?
When an automated billing system integrates with elements of your tech stack—like your CRM, ERP, accounting software, and payment gateway—it enables improved data integrity and efficiency. It facilitates moving revenue between ledgers, updating reports, syncing customer information, and compiling invoices and post payments. This frees up accounting staff to focus on more value-producing projects and strategic growth initiatives.
