The Easy and Complete Guide to Automatic Billing System

Are you still relying on manual procedures? Invoice generation and payment collection can be a tedious process, especially if you are using manual spreadsheets. An automated billing system cuts down on time and makes invoicing easier. We'll explore the benefits below.
June 14, 2024
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A decade back, most subscription-based companies treated pricing and billing as an afterthought. They would only focus their time on customer acquisition and retention. 

But what happens when your business scales? Your accounts team spends days (or even nights) calculating client payments, sending invoices, and establishing payment channels in the system. 

This begins to overload the team, causing delays in product development and inevitably missing key KRAs.

And that's exactly what happened at 100ms. The team was losing 250 hours on manual invoicing every month.

So, what did they do to scale from losing hours to becoming a million-dollar company? 

Adopting an automated billing system for their business that understood their requirements and evolved every time their pricing changed. 

But what is an automated billing system, and how does it work? Let's discuss the benefits below. 

TL: DR

  • An automated billing system automates all functions of the billing process, like generating invoices, collecting payments, and tracking revenue. 
  • Automated billing systems can help businesses scale their billing efforts, reduce churn and eliminate any human errors. It allows your sales and finance team to focus on achieving business goals without feeling burned out. 
  • Before choosing an automatic billing solution, make sure to assess your business financial needs and billing features that would improve the efficiency of your team. 
  • There’s a list of features that you need to take into consideration before choosing a billing solution, like automatic invoice generation, revenue recognition, payment processing, integration capabilities and more. 

What is an automated billing system? 

An automated billing system is a software solution that takes care of your business's billing process. From generating invoices to collecting payments and revenue tracking, an automated billing system does all of it on its own. 

It creates rules that automatically send out unpaid invoices at a frequency that works for your business. Automated billing system is a handy tool for subscription-based businesses. It pulls out data from different sources into a unified platform to generate quick and accurate invoices without much human effort. 

How does an automated billing system solve billing problems for subscription businesses? 

Manual billing or creating an in-house billing system makes sense until it does not. The lack of scalability quickly creeps in, as the organization grows and starts to handle large volumes of transactions. 

You're not alone — many growing SaaS companies find themselves grappling with the complexity of the recurring billing processes. 

Let's see how an automated billing system can help B2B businesses scale their efforts and make it easy for buyers to make quick decisions-

1. Handle complex buyer journey

B2B buyers' journeys have become longer and more complex, with more people involved in decision-making. These people are responsible for conducting a more detailed analysis of —

  • How smooth is the onboarding process for their team?
  • What are the additional benefits the vendor is providing? (free trial, discounts for higher usage volumes, upgrades, etc.)
  • Are vendors providing multiple payment methods and making it easy for them to make payments?

Most times, there are no straightforward formulas, and every buyer needs to be handled separately. Traditional billing systems find it challenging to implement innovative pricing structures. 

In fact, a whopping 76% know that their company has lost money because of time spent manually handling accounts. 

Source

On the other hand, automated billing systems can meticulously handle even the most complex billing transactions and eliminate human errors. For instance, if someone upgrades from a basic to a premium plan, the automation automatically calculates the pricing, takes payment, and updates the bill amount in real-time. 

2. Churn rate reduction 

All SaaS companies face churn issues—whether voluntary (where a customer ends a subscription on their own) or involuntary (when a customer wants to make a payment but their payment attempts fail). 

Research shows that 41% of subscription businesses have seen an increase in involuntary churn. Not automatically verifying cards (56%) or letting customers pay (45%) with an expired card is one of the top reasons for payment errors. These businesses are losing potential buyers and have a large opportunity to significantly increase their revenue. 

Automated payment solutions play a key role in managing involuntary churn. It automatically notifies customers about upcoming or overdue payments to increase the chances of successful checkout. One of the perks of this feature is that you don't have to manually check accounts for failed payments, retry declined payments, or keep track of any of these actions. 

3. Offering local payment methods to reach international buyers 

Many subscription-based businesses want to scale beyond domestic markets to newer, developed or emerging markets internationally. 

However, business leaders should also consider regulations, risks, and costs associated with different payment options. No matter how hard it is, there is no excuse for being non-compliant with GAAP principles, especially the ASC 606 revenue standard that gets most businesses in trouble. 

An ideal automated billing system takes charge of various judicial compliances. Not only does it recognize revenue automatically, but it also keeps your business compliant in complex areas, such as taxes and data security for customers. If not appropriately followed, the financial repercussions of non-compliance can be a business killer.  

4. Efficiently use your human capital  

Over time, as your business grows in complexity, the in-house billing system feels disjointed and unwieldy. This results in hours of workforce investment to make things work. 

Research shows that business leaders looking to replace billing solutions – used 45% of their current engineering workforce in billings, and 34% agree that their existing system is hard to maintain. 

Source

On the other hand, an automated billing system transforms what was once a time-consuming process into a fast, scalable, automated function. 

Imagine how much your team could achieve if they used 80% of their billing effort for higher-level business operations when businesses spend 11 hours or more a month on payments that could be spent on strategy. 

Source

The right billing software will support your workforce by reducing the need for constant fact-checking and eliminating operational friction to simplify and automate manual processes. These benefits will allow sales and marketing teams to focus on revenue-generating activities, thus increasing sales efficiency. 

5. Eliminates human error 

Your employees are human too. Once in a while, even the most competent ones can make mistakes. According to a research by Verapay, 80% of C-suite executives at large companies have lost revenue due to miscommunication, causing invoice disputes.

These errors can snowball into a messy billing process, requiring continuous fact-checking. Accidentally overcharging or undercharging your customers will create confusion and damage the customers' confidence in the business. 

On the other hand, automated billing systems carefully analyze data and pricing methods to create and send invoices with 100% accuracy. Customers who receive error-free invoices are more likely to be paid faster. 

Automated billing systems keep track of money that flows in and out and update information in real time. This helps business leaders access up-to-date data, measure their financial health, and make accurate decisions. 

How does automated billing work?

Here's an overview of how automated billing software works:

  • Data integration: Automated billing solutions seamlessly integrate with the company's existing databases, including CRM, ERP and payment gateways, to eliminate manual intervention. 
  • Invoice generation: The software draws purchasing information from contracts, purchase records and subscription plans. The system automatically analyses this information to automatically create invoices at predetermined intervals and any risk of human error. 
  • Payment processing: Your billing software can integrate with a diverse array of payment gateways. Whether the client chooses bank transfer, credit cards or alternate payment methods like digital wallets, cryptocurrency and Buy now, pay later. The system will match the payment gateway to respective invoices. 
  • Proactive notification: An automated billing system helps to maintain the timely fulfilment of invoices by sending pre-scheduled notifications about upcoming overdue payments. 
  • Analytics-driven reporting: These software solutions mostly come with solid reporting features that provide a rich source of data-driven insights. It provides the finance teams with information about client payment habits, future payment trends, and invoice fulfilment. 
  • Security standards: Automated billing systems follow financial compliance standards with robust encryption protocols, which protect the data of both business and their customers. 
  • Adaptability and customization: As your business grows, your business model will shift, expand and evolve. Automated billing solutions can adapt to any kind of pricing change and continue to meet the needs of the business. 

Overall,automated billing systems are a game changer. They not only save time but also reduce the chances of making mistakes. This means fewer errors and accurate financial records for your business to rely on. 

How to set up an automatic billing system?

While setting up an automated billing system is a simple process, however, not every business operation is created equal. Therefore, the steps required to establish an automated billing system are different. 

You can utilize automated billing software that allows you to create rules and logic that accurately define your billing process, no matter how complex it gets. 

This is the step-by-step process to set up an automated billing system for your subscription business-

Step 1: Asses your business needs

Start by identifying specific business needs for your business, like:

  • The complexity of your billing cycle
  • The type of payment you accept
  • The variety of payment terms you offer
  • The volume of invoices your business processes 
  • The systems you need to integrate your billing software with 

Keeping this necessity in mind, start by exploring different billing options available in the market. Here are some features to compare:

  • Flexibility to change pricing plans
  • Built-in payment gateway
  • Multi-currency payment 
  • PCI compliant 
  • Dunning management 
  • Real-time analytics and reporting 
  • Integrations with business software
  • Recognizes revenue according to ASC 606

We have explained these features in detail in the section. 

Step 2: Integrate your chosen billing software with your existing system

Once you have chosen the right automated billing software for your business, it's time to integrate it with your existing accounting system. 

Here's a checklist you can follow:

  • CRM integration: Sync customer data from your CRM to ensure billing information is up-to-date. 
  • ERP and accounting software: Integrate your billing software to your ERP and accounting solution for accurate revenue recognition
  • Custom pairings: You can use Zenskar's API for smooth integration and data validation across systems.  

Step 3: Configure billing guidelines 

The next step in this process is to establish billing rules. 

You’ll define the product and services that your business offers. This will include the different variations of pricing tiers you might have. Next, is to establish your pricing structure like whether you’re sticking to fixed rate, usage-based pricing, or any other pricing model. 

In the last part, you’ll tailor your billing cycle on how often you will invoice your customers, any late fees fine or pinning down any specific detail that you might have. 

You can now create a bunch of payment templates to easily onboard your customers.

Step- 4 Continuously monitor and optimise your billing processes 

Once everything is in place, it's important to continuously monitor and optimise your billing process to make sure they meet your billing requirements. 

You can use your billing tool’s reporting features to gain insight into billing efficiency, customer behaviour and revenue streams. You can stay informed on how your business is performing and identify future billing trends. 

What are the key features to look for in an automated billing system?

When it comes to your business’ financial health, all you should care about is efficiency. An ideal automated billing system lets you get paid faster, eliminate billing mistakes, and improve cash flow  — the lifeline of your business. 

The importance of nailing your automated billing system is enormous. Here are some key features to look for when selecting your automated billing software —

1. Pricing and packaging

The ability to rapidly adopt different pricing strategies is essential to drive growth for a subscription-based model. Many businesses stagnate in the market because their billing system fails to deliver pricing plans that address customers' needs.

Your automated billing system should shift across different types of pricing models, including:

  • Fixed pricing is where users pay a fixed price every single month. 
  • Tiered pricing is where users can select between multiple differently-priced packages with unique feature combinations. 
  • Pay-as-you-go pricing is where customers are charged based on their usage of the product or service. 
  • Bulk pricing is when the prices of the product or service decrease as volume increases. 
  • Per-user pricing is where cost is based on the number of people using the product or service. 

To help your business convert more customers, your billing system should allow discounts, free trials, promotions and coupons. At the end of these offers, your billing software will send a reminder notification that the free trial has come to an end, and they can now switch to paid plans. 

2. Billing Automation 

Billing is the process of creating an invoice for a customer on a recurring basis according to the pricing plan they have selected, their usage in that billing period, and any discount that may apply. 

These are some key billing capabilities your billing platform must support:

  • Creating invoices: Your billing platform should automatically generate invoices with proper branding for customers, indicating the amount due at set timelines. 
  • Adjustments: Your billing platforms should allow you to adjust invoices like crediting or debiting an invoice or doing specific adjustments.
  • Multi-channel delivery: Invoices should be delivered by email and posted on the online self-service portal. 

3. Payment options

Every business needs a way to get paid. This section outlines the key features your automated billing system should have to enable an easy payment process. 

  • Multiple payment types: Your billing system should allow multiple payment options like bank transfers, credit card transactions, or wire transfers that are processed outside of your accounting engine and must be recorded back in the billing system. 
  • Ad-hoc payments: Even though subscription payments are collected at regular intervals, your billing software should still support ad-hoc payments (irregular or outstanding payments)
  • Scheduled payment runs: Your platform should accommodate automated payments that are scheduled at regular intervals. 
  • Payment Gateway Integration: It should also include multiple payment gateway integrations to seamlessly process invoices. Equally important is the ability to change gateways seamlessly so your customers don't have to re-enter card information when you add or change gateway contracts. 
  • Refunds and chargebacks: Many businesses skip this feature, and it backfires in future. Refunds and chargebacks can happen for multiple reasons, and your billing department should be able to process them. 

4. Account and subscription management

When a customer purchases an offer, your automated billing platform will create a subscription for that customer, defining what has been purchased, by whom, for how much and for how long. 

This section will outline the feature requirements for creating subscriptions and managing accounts throughout the customer's lifecycle:

  • Creating a subscription: When someone purchases from your business, your billing software should add the customer name and ID, renewal terms, product purchased, and billing intervals. 
  • Account creation and viewing information: Your web storefront should allow new customers to create an account and make an initial purchase online. A customer should be able to view an account profile, payment method, subscription details, and invoices. 
  • Updating information: An account holder should be able to change the account username and password and contact information and add, remove, or cancel the subscription. 

5. Reporting and metrics

Your automated billing solution should be able to provide you with real-time access to reports and subscription metrics. 

Some important metrics to consider are:

  • Total Customer Value (TCV)
  • Monthly Recurring Revenue (MRR)
  • Cash Flow
  • Churn
  • Customer Lifetime Value (LTV)
  • Customer Acquisition Rates
  • Product / Subscription Sales
  • Earned Revenues

You'll want a single overview of how your business is performing. These subscription metrics are important to keep your business's financial health in check; you should keep an eye on them. 

Try Zenskar, fully-automated, completely flexible option, no-code billing infrastructure

If you are still here, you are desperately looking for a magic solution that can dust off all your billing problems and provide a completely flexible solution that can fit any use case, business or pricing model.

Zenskar is an automated billing solution for SaaS businesses that enables sales teams to create complex contracts with no-code. We have built a billing platform that is as flexible as possible. 

Here are some core features of Zenskar’s that can benefit your business:

  • Zenskar has its proprietary graphic data model. That means billing elements like usage metrics, pricing models, entitlement and more — are each a separate unit. That means your finance and sales team can design complex contracts in just a few clicks. 
  • If metering is tightly integrated with billing, developers need to be actively involved in the billing process. However, with Zenskar's decoupled nature of billing and metering, you modify one without affecting the other. 
  • Zenskar offers an event-based infrastructure that records every transaction, payment status, invoice, etc, as an event that can be later modified according to accounting rules. You can easily create custom accounting rules or publish journal entries with the platform. 
  • Zenskar offers an in-built communication module that gives you everything you need for collection without the need to integrate an email tool. 
  • Zenskar offers end-to-end automation from subscription management to collection; you can automate the entire process. 

Curious to learn more? Book a demo, and we'll show you how Zenskar can automate your billing options.

FAQs

1. What are the advantages of automating SaaS billing?  

An automated billing system:

  • Can handle complex pricing models
  • Reduce involuntary churn rate
  • Will help in the expansion of your business 
  • Increase the efficiency of your team

2. How do automated business models reduce revenue leakage?

Revenue leakages often occur in manual systems where recurring charges are missed. Automating invoices makes this an ongoing process. That means account charging, communication and collection are automated according to a fixed schedule. 

3. What are some of the challenges that can be resolved through an automated billing system?

Automation resolves challenges involved in complex pricing, difficulties in managing pricing models, inaccuracy in revenue recognition and inefficient handling of payments. 

4. What is automated billing?

An automated billing system is a software solution that takes care of your business's billing process. From generating invoices to collecting payments and revenue tracking, an automated billing system does all of it on its own. 

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