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The subscription business model is booming. Customers love the convenience. Businesses love the recurring revenue. Some observers even predict it could soon be so popular that every company will become a subscription business of one kind or another.
However, as demand for products and services through this model increases, so does the need for digital transformation in the companies using it.
Manual business processes are inherently slow and error-prone, and they detract from the agility needed to innovate and compete. To position your subscription business for scale and success in this increasingly competitive landscape, automation is critical.
Billing automation is an often-overlooked element of a complete digital transformation. And unfortunately, many business leaders don’t think about enhancing their billing process until pain points have already appeared. But to maintain a healthy cash flow, and keep your business operating at its highest level of efficiency, automated billing is a vital evolution.
5 advantages of an automated billing system
Want to foster your unlimited growth potential and truly elevate your value to your customers? Here are five areas of your business that can be enhanced with billing automation.
1. Recurring invoicing
Recurring invoicing is a key component of subscription billing. Every cycle, each account is invoiced according to its subscription(s). An invoice may include set recurring charges, usage-based charges, and/or one-time charges, depending on how your subscriptions are set up.
There could also be multiple users on each account racking up various charges.
Many businesses start out with manual processes, using spreadsheets or very basic billing software to manage their invoices and track payments. But as customer counts rise, and as subscription businesses evolve their offerings, manual invoicing becomes impossible to scale and extremely prone to human error. Hybrid pricing models and complex billing cycles lead to tedious billing management operations.
Eventually, scaling subscription businesses reach a tipping point when automation becomes a necessary step in their maturation.
Automated recurring invoicing alleviates the strain of billing and lets your business “set it and forget it.” Your platform will generate customized invoices each month for all your customers and their subscriptions based on their specific account settings.
You can also set your system to auto-post invoices and auto-collect on payments in real time. Any element of the automated process can be turned on or off at the subscription level, and a customer’s payment terms can be adjusted, as necessary.
All of this dramatically reduces the time your team spends on SaaS billing. At Stax Bill, we’ve seen companies reclaim 30 to 40 hours each month—time they used to spend on billing-related tasks. Your business can also eliminate costly mistakes and revenue leakage that inevitably occur with manual solutions.
One company we worked with scaled from sending 100 to 600 invoices a month, and its new automated billing functionality lets it recover an average of $600,000 in revenue each year.
2. Dunning management
How often do customer credit card payments fail in your subscription business? How long does it take your team to follow up with those failed payments? And after following up, what percentage of failed payments are converted into successful payments?
The dunning process for subscription businesses is larger - and arguably more important - than it is for traditional businesses. For a one-time purchase, payment can be secured before providing a product or service.
But for many subscription businesses, products and services are provided up front or may be available even if a payment is pending. What’s more, leaving expired credit cards on file can lead to recurring revenue loss, and even customer churn.
Intelligent automated billing platforms have built-in dunning management processes to prevent failed payments before they happen, and immediately rectify any that do. Pre-scheduled notifications can be sent to customers about upcoming card expiries, payment failures, overdue payments, and more.
And failed payments automatically trigger scheduled card retries without your team having to get involved.
What’s the success rate of retries? It varies of course, but we see an average of about 5% when credit cards are retried a few days after they initially failed. This recovered revenue and eliminated collections effort adds up quickly over time.
Customer self-service portal functionality is another platform feature that can ease the recurring billing experience for your team and your customers. Users can completely avoid the customer service process and simply update their own payment information as needed.
You can also trigger your dunning management emails to automatically direct customers to their portals to perform updates, simplifying the process.
3. Subscription plan changes
Speaking of self-service portals, agile automated billing platforms also let customers use this feature to upgrade or downgrade their own subscription plans. This eliminates any barriers to upgrade (or downgrade), enabling customers to access exactly what they need when they need it. And this streamlined process also reduces strain on your business’s resources.
With a simplified customer journey and more time for your staff to spend on critical business operations like customer success initiatives, retention comes naturally. And as we all know, it costs more to bring on new clients than it does to keep existing ones, so this inevitably leads to increased revenue and improved customer lifetime value.
Easy mid-term subscription plan migration is just one more element of a successfully scaling subscription business. And with an automated billing platform in place, your customers and your team can perform these moves with the confidence that all the appropriate data and plan details will update behind the scenes.
4. Data management
We’ve talked about how scaling subscription businesses grow in complexity, and we can’t understate how true this is. As your business takes on more and more customers, managing all the customer, account, usage, and billing data becomes a monumental task.
Fortunately, adaptive recurring billing software is up to the challenge. Not only can such a billing platform act as your business’s financial system of record, but it can also serve as the single source of truth (SSOT) for your accounts-receivable-related revenue operations.
The idea behind a SSOT is to have all critical information in one place, up-to-date, and accessible by everyone in an organization who needs it. Having a SSOT keeps your entire team on the same page with data, which means better customer interactions and more informed business decision-making.
Accurate, real-time information is critical to staying relevant and competitive in subscription business today. Automated billing platforms update data based on information from self-service portals, automated invoices and payments, and team data inputs.
5. Revenue recognition
Maintaining your subscription company’s compliance with Generally Accepted Accounting Principles (GAAP)—specifically ASC 606—quickly becomes unmanageable at scale with manual and legacy billing solutions. Recognizing deferred and earned revenue for a recurring revenue business is an ongoing task most efficiently left to automated billing software.
Look for a recurring billing platform backed by a general ledger (GL) for the best possible results. A GL uses double-entry accounting principles to further prevent errors, literally doubling down on data accuracy. It distinguishes sales from collections with debit and credit records for every transaction.
This multifaceted approach to revenue tracking ensures your subscription business never has to worry about accurate, compliant revenue recognition. It also provides more granular insights into the performance of your different revenue streams as it can be broken down by GL codes, which can inform business-shaping decisions.
Finally, robust reporting functionality makes it simple to update your accounting software with the appropriate financial data.
Automated billing: a pillar of digital transformation
For subscription businesses poised to scale, automated billing isn’t an option - it’s a necessity. Without the accuracy and efficiency gained through automated invoicing, dunning management, account and data management, and revenue recognition, subscription businesses struggle to remain competitive.
While there are many automated recurring billing platforms out there, it’s important to find one that’s the right fit for your business. Think about your specific needs today, as well as what you’ll need to support the business you want to become down the road.
Build on your capacity and infrastructure by optimizing your revenue operations around your accounts receivable, and foster your SaaS growth potential.
With the right subscription billing solution, the sky’s the limit.
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