For a tech-savvy entrepreneur, Software as a Service (SaaS) might just be the ideal business model for a new profitable venture. There are generally lower up-front costs than traditional business models, a fast time-to-market, with an opportunity to generate recurring revenue. But SaaS comes with unique challenges, and one of the most pressing is how you’re going to collect payment. The complications of subscription management and the necessity to adhere to data privacy regulations, tax requirements, and other compliance standards are dauntingly complex. Fear not, there are solutions that can make all this much more manageable. Perhaps not surprisingly, the solution is SaaS itself, in the form of SaaS billing software.
The SaaS billing process
Software as a Service (SaaS) is a cloud-based software delivery model, usually paid by subscription, and is one of the fastest-growing business models globally. In 2022, its global market size was valued at $237.48 billion, and is expected to grow from $273.55 billion in 2023 to $908.21 billion by 2030. This equates to a CAGR of 18.7% during the forecast period.
SaaS is growing for good reason — it provides significant benefits for both business owners and consumers. But it comes with some challenges, too. One of those challenges is receiving and processing payments. To understand the complexities involved here, let’s take a closer look at some of the key factors involved in the SaaS billing process — payment processing, the merchant account, and subscription management.
Payment processing
You’re probably familiar with PayPal, Stripe, and Amazon Pay when paying for items online. These are examples of payment processing gateways, which enable the secure transfer of funds. A payment gateway allows customers to make online payments using a variety of payment methods. Payment methods could be, for example, credit cards, debit cards, or digital wallets. The payment gateway encrypts and securely transmits the payment information, authorizes the transaction, and transfers the payment from the customer to the merchant account.
Merchant account
A merchant account is a bank account that allows your business to accept and process payments from customers. The merchant account holds the funds received from customer payments before they’re transferred to your business bank account. It provides the infrastructure for processing and settling transactions, managing chargebacks, and guaranteeing compliance with payment card industry regulations.
When you use the services of a Merchant of Record (MoR), some of these processes will be overseen and managed by the MoR. We’ll talk more about that later.
Subscription management
Subscriptions for SaaS are often complicated. You might provide varying subscription plans and add-ons which involve handling upgrades or downgrades, process recurring billing, manage customer information, and handle subscription-related communications. You’ll need some sort of subscription management solution to automate these tasks, and this is often included in SaaS billing software. Or you may prefer separate integrated software to manage your subscriptions.
Other SaaS billing issues
While these three factors form the basis of SaaS billing, there are a couple of other factors to be considered, which closely intertwine with SaaS billing. These are the merchant of record and data analytics.
Merchant of record
Selling SaaS involves dealing with different legal and tax regulations from all over the world. This necessity to deal with different rules and regulations can make payments, billing, and dealing with taxes extremely complex.
A merchant of record (MoR) is a legal entity that takes responsibility for processing and collecting customer payments on behalf of the SaaS provider. The MoR handles the financial aspects of transactions, including managing payment gateways, merchant accounts, compliance with legal and tax regulations, and ensuring secure payment processing.
By partnering with a reliable merchant of record, you can streamline your billing operations, and offload compliance burdens, freeing you to focus on your core operations.
Some billing software services may offer full or partial merchant of record services. Others might not offer any. In this case, you could either take on these responsibilities yourself, or use additional MoR services.
Analytics
Finally, analytics, need a mention here too. Although separate from the payment process, some SaaS billing software can provide detailed analytics. These capabilities give valuable insights into customer behavior, subscription trends, and other key performance metrics. This data-driven approach can help you optimize pricing strategies, identify revenue growth opportunities, improve customer retention, and make informed business decisions. If your billing software doesn’t provide analytics capabilities, you could supplement it with additional analytics software.
Why do you need SaaS billing software?
So, collecting payment for SaaS is far from straightforward. There’s a myriad of complex factors to consider which, unless you have just a handful of subscribers, are difficult to manage without the appropriate software. Let’s go through some of those factors in more detail.
Accurate billing
SaaS billing software automates the process of billing, which makes errors far less likely. Customers receive accurate invoicing based on their current usage or subscription plan without the need for any manual calculations.
Subscription management
Most SaaS businesses use a subscription-based pricing model. They may offer several different pricing tiers and various add-ons. Additionally, customers may upgrade or downgrade their subscription at any time. So customers anticipate their payments to be prorated based on their time spent at different pricing levels. Software is essential to manage and track customer accounts and deal with these levels of complexity.
Flexible pricing and packaging
SaaS billing software allows businesses to manage a range of plans and pricing structures so that they can offer their customers a greater range of options.
Recurring revenue management
Recurring payments can be automated with SaaS billing software. The software can also handle failed payments and dunning management, providing a consistent revenue flow and less revenue loss due to leakage.
Integration with payment gateways
According to research, 56% of buyers wouldn’t make a purchase if they weren’t able to use their preferred payment method. So providing alternative methods of payment can have a considerable impact on sales.
Although most people prefer to use a debit card when paying for a subscription, a significant number would prefer other methods of payment. Integration with payment gateways means your customer has a choice of payment methods, including credit cards, debit cards, and digital wallets. So software that integrates with, or provides payment gateways may help you acquire more subscribers. For some billing solutions, such as Stripe, the payment pathway is intrinsic to the software.
Reporting and analytics
We’ve already touched on reporting and analytics, and some SaaS billing software provides these capabilities. Data about revenue, customer trends, and subscription metrics can give you valuable insights which help you make informed decisions, optimize pricing, and identify opportunities for growth.
Compliance and security
SaaS billing software protects sensitive data and helps you maintain compliance with industry regulations.
Scalability and growth
As your SaaS business scales and acquires more customers, managing billing and revenue becomes a whole lot more complex. SaaS billing software accommodates growth by providing a scalable infrastructure that can easily manage the increasing volume of your transactions.
Customer experience
SaaS billing software can improve your customers’ experience by providing self-service portals. Here they can view invoices, manage subscriptions, and update payment information. Not only is this transparency more convenient for customers— it’s also likely to reduce demand for your customer support services.
How to choose the best billing software for your business
Finding the right billing software at the start of your SaaS business venture is likely to save costs and avoid inconvenience and lost time later. Let’s look at a few of the factors you’ll need to consider when making your choice.
Scalability and Flexibility
Your subscriber list may be small at the moment, but consider how you want it to look in a year or more’s time. Can the software handle the customer growth, increased transactions and flexibility that you predict for the future of your business? Look for solutions that allow for customer growth, easy customization, integration with other systems, and support for various pricing models to accommodate your evolving business needs.
Billing Automation
How much automation can the software provide? At a basic level, it should provide automated recurring billing, and invoice generation. Can it provide additional functions, such as automated subscription billing, automated notifications, merchant of record functions, and dunning management?
Subscription Management
If your business operates on a subscription-based model, you’ll need robust subscription management features. Make sure that the SaaS billing software supports subscription lifecycle management, including subscription creation, upgrades, downgrades, and cancellations. Look for functionalities like metered billing, usage-based pricing, and tiered pricing options to manage different subscription plans and pricing tiers.
Payment Processing and Security
Check if the SaaS billing software integrates with reputable payment gateways and supports various payment methods. Additionally, look for compliance with industry-standard security protocols, such as PCI-DSS, to protect sensitive customer data and guarantee secure transactions.
Analytics and Reporting
Can the software generate analytics reports on key metrics such as revenue, churn rate, customer lifetime value and subscription trends? These insights can help you identify opportunities for growth, optimize your pricing strategies, and improve customer retention.
Customer Support
Good customer support is an essential feature of any software, particularly when that software is likely to be complex, and your revenue relies on it. So find out as much as you can about the level of customer support provided by your proposed SaaS billing software company. Determine the availability of technical support, training resources, and documentation to help you during the initial stages of implementation, and ongoing usage.
Integration
Check if the software integrates with your existing systems such as CRM, accounting, or customer support tools.
Cost
Evaluate the pricing structure of the SaaS billing software and determine whether it aligns with your budget. Consider factors like setup fees, transaction fees, and any additional costs for customization or integrations. Look for transparent pricing models that offer scalability as your business grows, and compare different options to find the best value for your investment.
Reviews and recommendations
It’s always a good idea to find out about other users’ experiences with any software you’re considering purchasing. Read reviews, and ask for opinions and recommendations. Finally, get some hands-on experience with the software — make use of any free trials on offer, and ask for a demo wherever possible.
5 SaaS billing solutions
Stripe
Stripe is a versatile payment gateway software solution that supports a comprehensive range of other payment-related needs such as subscription management and recurrent billing.
Features
Global payments: Stripe is a global payments platform, capable of handling transactions in multiple currencies and across numerous countries.
Fraud prevention: Stripe Radar provides real-time fraud protection protecting the safety of all your transactions.
Payment analytics: Stripe Data gives you a deeper understanding of transaction trends and customer behavior, allowing for better, more informed strategic decision-making.
APIs: Stripe’s APIs allow the platform to integrate seamlessly with many third-party payment services. This means you can broaden the range of payment options and services that your business can offer, and implement the software with minimal disruption to your existing operations.
Billing options: Stripe provides versatile billing options such as simple recurring billing, subscriptions, or usage-based billing.
Promotions and coupons: Built-in support for promotions, coupons, free trials, prorations, add-ons, and overages is incorporated into the system.
Churn reduction: Features such as retries, automated emails for failed payments, and an automatic card updater contribute to reducing churn.
Automated reporting: The platform’s financial reports and automated business insights provide detailed information about growth, churn, and financial health. Businesses can use these metrics to gauge performance and plan future strategies.
Revenue recognition: Stripe provides audit-ready financial records and a full range of support that’s designed to keep businesses compliant with global standards such as ASC 606 and IFRS 15.
MoR features: While Stripe has some Merchant of Record (MoR) features, it doesn’t offer comprehensive MoR services. You might choose to address this yourself, or employ additional services for tax and compliance management.
Customer portal: Stripe includes a portal where customers can self-manage their subscriptions, reducing the administrative load on your business.
Paddle
Paddle is a payments infrastructure and merchant of record specifically developed for B2B SaaS companies. It provides an extensive all-in-one solution keeping all revenue data in one place.
Features
Checkout: Paddle provides a secure, customizable checkout system that allows your business to manage transactions smoothly.
Secure payments: Paddle provides a secure payment gateway. This ensures the safety of all transactions, protecting both the business and its customers from potential fraud.
Merchant of record: Paddle provides a full merchant of record service which is specifically built for software services. By acting as the merchant of record, Paddle simplifies global transactions. It automatically takes care of accurate tax collection and provides compliance with local regulations in markets around the world.
Invoicing: Paddle auto-generates accurate invoices for every transaction, which can be sent to customers or stored for business records.
Subscription management: The platform offers a subscription management feature. Businesses can manage, update, and track their customers’ subscription status, including renewals, cancellations, and upgrades.
Subscription reporting: Paddle’s comprehensive reporting tools provide valuable insights into subscription performance. These reports allow your business to understand customer trends and improve your offerings accordingly.
Renewals: Paddle handles automatic renewals and communicates with customers about their subscription status.
Reporting: Paddle’s reporting features provide you with detailed financial data, transaction records, and other analytics.
Upsell insights: Paddle analyzes your customers’ behavior and purchase patterns to identify potential upselling opportunities.
Fraud protection: Paddle has inbuilt fraud detection and prevention mechanisms.
APIs and webhooks: Secure APIs and webhooks allow you to integrate the platform with your existing tools.
Recurly
Recurly is a subscription management and recurring billing platform which allows for easy automating recurring billing at scale.
Features
Subscriber management: The subscription dashboards and reports show all subscriber data in one place, including active, paused, canceled, or expired subscriptions. The customer portal allows your subscribers to modify, pause, or cancel their subscriptions as needed.
Secure payments: Recurly supports multiple payment gateways with a choice of regional and global providers. Secure payments can be made from anywhere, in multiple currencies. With automatic gateway failover, the system automatically switches to a backup payment gateway if the primary one fails or encounters an issue.
Fraud protection: Payments and subscribers’ data are guaranteed secure with in-built fraud management.
Recurring billing: Recurly provides automated invoice creation with precise tax calculations for anywhere you’re doing business. A variety of flexible billing options allow you to simplify billing across different plans, renewals and adjustments.
Churn management: Involuntary churn happens when a customer unintentionally fails to meet a payment, for instance due to an expired or lost card. Recurly’s intelligent retries function, uses machine learning to schedule a transaction retry at a time when it’s more likely to succeed, helping to reduce involutary churn.
Revenue recognition: Recurly ensures that you automatically follow ASC-606 and IFRS-15 regulations for revenue recognition.
Reporting and analytics: Built-in dashboards and reports provide you with a wealth of insights such as how many subscribers you have, campaign results, your churn rates and your net subscriber change.
Billsby
Billsby is a subscription billing software that allows you to build products based on plans and cycles. It handles recurring billing, invoicing, and lifecycle management for your customers.
Features
Integration with payment gateways: Billsby isn’t a payment gateway but provides easy integration with a choice of gateways including alternative gateways for different countries
Flexible pricing options: Billsby provides various pricing models such as flat fee, per unit, volume, tiered, recurring, usage-based and one-time charges
Subscription management: The subscriptions page allows you to handle subscription creation, upgrades, downgrades, and cancellations. Billsby also offers features like proration, metered billing, and pro-rated refunds, giving you granular control over the subscription lifecycle.
Reporting and analytics: the reporting and analytics features give you insights into key metrics, such as recurring revenue, churn rates, and customer behavior.
API and integrations: Billsby integrates with many of your existing business tools, such as CRM systems, marketing platforms, accounting and analytics software.
Add-ons and allowances: These can be optional or bundled with specific plans
Discounts and coupons: Billsby allows you to create and manage unlimited percentage-based or monetary-based discounts and coupons
Dunning for declined and failed payments: In the event of a failed payment, a subscription invoice will go into the dunning flow, triggering a series of emails and payment reattempts.
Tax compliance: Billsby will calculate taxes according to the specific tax laws and rates in these regions: United States, Canada, European Union (including the UK), Australia, New Zealand and India. It supports flat rate taxes for the rest of the world.
Revenue Recognition: Billsby Pro provides automatic processing and reporting of ASC 606 and IFRS 15 obligations
Subskribe
Subskribe is specialist Configure, Price, Quote (CPQ) billing software for growing SaaS companies. It’s particularly useful for businesses that sell complex and flexible products and services.
Features
CPQ: CPQ makes complex quoting fast and easy. Subskribe allows you to quickly configure complex customized products and services, determine a price, and provide a quote.
Integrated quoting and billing: Quoting and billing housed within one system removes the need to manually transfer data from one system to another. It reduces errors, and makes sure that the information presented in the quote and the final bill is consistent.
Speed: The sales cycle can be faster when quoting and billing are integrated because there’s no need to wait for information to be transferred or re-entered into a different system. Once a quote is approved, the billing process can begin immediately.
Complex billing: Subskribe automates complex billing that changes and evolves based on customer needs. This might include flexible discounts, usage-based billing, or contracts that ramp up over time.
Revenue recognition: Subskribe automates revenue recognition for complex deals so you can track recognized and deferred revenue.
Data visibility: Subskribe’s integrated quote and billing system provides comprehensive data for business analytics and reporting.
Multi-currency: Subskribe supports international and multi-currency sales by default.
Integrations: Subskribe integrates with Avalara, DocuSign, HubSpot, NetSuite, PandaDoc, QuickBooks, Salesforce, Slack and Stripe.
Conclusion
So that’s a rundown of what you need to know about SaaS billing software, and an introduction to a small selection of the software that’s on offer.
SaaS is an exciting, rapidly growing market. It takes hard work and commitment to overcome the challenges of gaining a foothold in that market, but there are solutions that can help at every step. The right SaaS billing software solves one of your most pressing challenges – collecting payment for your services.
Now it’s over to you – time to do some research, explore the options, and find the perfect SaaS billing solution for your business.