Billing automation in subscription businesses
illing is an essential part of any organization—an instrumental feature in the functionality of the business. However, it’s also part of the way trusted relationships with customers are built.
All businesses require necessary features like payment tracking, integrated payment processing, accounts receivable, and accounts payable. However, in subscription businesses, the process is made more complex by the recurring nature of billing and the need for adaptability as customers scale their subscriptions up or down over time.
In this article, we look at the key features needed in the perfect subscription billing experience and how to execute them.
Why is the subscription billing experience important?
Billing in a subscription business needs to be considered not merely as a mechanical function but as part of the ongoing customer journey. It's an important part of a subscription business, not only because it's the method of collecting revenue, but because it's instrumental in retaining customers over time.
The mechanics of a billing experience might be about software, keeping track of sales and payments, managing cash, and preventing errors in the compilation of bills and invoices, but the seamlessness of that process has a direct impact on customer relationships, customer experience and helping to build trust and prevent churn.
The customers’ sense of satisfaction with the billing experience impacts their choice to retain the service, and that in turn influences whether they recommend you to other customers, and your ability to build your customer base. That cumulative swell of retained customers over time is the essence of a growing, successful, and sustainable subscription business.
Prerequisites for a frictionless billing experience
What should you look for in the perfect billing experience? It starts with asking the right questions. In the first instance, you need to identify the following:
- Who needs to be billed?
- What subscriptions/products do they need to be billed for?
- How much should they be billed (pricing model)?
- When do they need to be billed (billing cycle)?
- How do you collect payments?
- How does the subscription data need to be reported for analytics and accounting?
Your subscription engine should then provide the solution. It's best to look for a billing solution that already has these integrated features, and that can fit into your wider subscription engine. Building your own billing system is complicated and costly, and invariably suffers from glitches that dilute or damage the customer experience. keylight is developed with the following best-practice capabilities for an optimal billing experience:
- Customizable billing logic
- Automated proration handling
- Usage-based billing
- Consolidated invoicing
- Advanced calendar billing
- Recurring and advanced invoices
- Dynamic account network with account hierarchy
- Manage payment failures with dunning workflows
Your subscription engine should also provide the following for customers to have a nurturing and comfortable billing experience:
Strong subscription management
Subscription management is the process of managing the customer's subscriptions and ensuring that the experience they have is a positive one. This is essential to any subscription business and its billing experience. Crucially, it's an ongoing, rather than static, process.
Management needs to adapt over the course of a user's lifecycle, taking into account any upgrades, subscription pauses, and adjustments that reflect their changing wants and needs. Subscription management also incorporates price changes, discounts, trials, and freemium experiments, all of which impact the billing process. Your system needs to be able to handle and automate processes associated with all those elements encompassed in the customer journey, both as the individual customer relationship develops and as the business itself scales up.
Recurring billing capabilities
The recurring nature of billing in subscription businesses is one of the key elements that sets it apart from other types of organizations and billing engines. As pricing changes over time and you experiment with different pricing offers (perhaps with A/B testing), your billing system needs to be able to adapt accurately.
Recurring payments
Distinct from the recurring billing capabilities, your system needs to be able to stay on top of recurring payments and ensure they're being collected. This means allowing for different payment methods, and understanding that people and different regional markets have their own preferences. However, it also means making it simple and easy to update payment methods or to send reminders, for example, if a customer's card is out of date.
How recurring payments are managed will depend significantly on whether you have a largely self-serve subscription business model or a solid sales rep-driven model. The former will need to support multiple payment gateway services, while the latter should support wire transfers, cheques, and other offline payment methods.
Dunning management and smart retry features
Dunning management is an automated payment recovery mechanism, which activates if a payment fails—an event that might happen for example if a customer's listed credit card has expired over the course of their subscription. In that event, Dunning management will notify the customer electronically–usually by email, text, or an in-platform notification. Smart retry features work in tandem with dunning management—if a payment fails, it attempts the payment again up to eight times in a customized timeframe.
Having the capacity to automate processes seamlessly between payment solutions and the subscription engine is essential for subscription businesses in order to stay on top of their finances, but also to help retain customer relationships. Subscription businesses need to see the successful collection of payment as their responsibility, making it as easy as possible for customers to update payment methods, and to collect payment without antagonizing or upsetting the customer and thereby losing the relationship.
Automated processes are essential for both customer relationships and sustainable business management, especially as your organization grows and you develop a high volume of transactions.
Accounting and taxes
A recurring billing system has to seamlessly sync with your accounting system, mapping everything including subscription plans, add-ons, discounts, coupons, credit notes, and even ad-hoc charges correctly.
Many subscription businesses operate across national and international borders, each with different tax rules and rates. For this reason, it's vital that your billing platform can automatically calculate tax and VAT based on the region you are selling into. The system has to be painstakingly accurate so you know you can trust the numbers that it produces and don't end up with issues with financial authorities or unexpected tax bills.
Reporting and analytics
Reporting and analytics are the backbone of the management and constant improvement that's integral to growing a subscription business. Your billing platform should have diagnostic capabilities, deep analytics, and a wide range of reporting options. This will enable you to track the right KPIs, so you can do each of the following, which fundamentally influence and improve customer experiences:
- Identify customer behavior patterns and segment them to tailor the billing experience further
- Take financial positions (e.g: identify revenue leakages and opportunities)
- Create better marketing strategies (e.g: identify promotional returns and analyze campaign outcomes)
Integration with your subscription business
One of the important mindset positions of subscription businesses is understanding how intertwined billing is with the rest of the subscription experience. It doesn't sit in isolation–ideologically or practically–from the rest of the customer experience. As such, it's essential that billing systems do not work alone, but as a core component of your revenue operations tech stack. They have to integrate with your wider business platform and systems.
Security and compliance
Trust is arguably the most important element in a customer experience, particularly when it comes to personal and financial information. From a practical standpoint your business has to be compliant with laws and legislation around data compilation, storage, and protection, so you must have best-in-class security in place to protect your customers and your business.
However, it's also important that your customers can see signs of the measures you're taking to protect them–it means making billing processes easy and simple with the hallmarks of trust at each point. Key messaging and seamless systems are an essential part of putting your customers at ease.
The damage caused to a business when there is a data leak or a customer's information is compromised can be extremely destructive to your business and your reputation. Your subscription system needs to rank well in user-level access and internal security.
The business benefits of a comprehensive subscription billing experience
The key to creating the perfect billing experience in your subscription business is to think of it as part of the customer experience rather than a mere financial function. Understanding that recurring billing and subscription management go hand in hand and that billing management can have far-reaching consequences across your revenue operations, will make you consider the expectations of your billing platform and processes differently.
Placing the customer at the center of your business development and growth plans will help you understand the importance of minimizing friction across the entire customer lifecycle, including the billing experience. With that in mind, by implementing a comprehensive billing platform based on these key criteria, you can help boost monthly recurring revenue, reduce churn rates, and provide a stellar customer experience.
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