For SaaS organizations, frictionless invoicing is more than a choice; it's a need. Yet, invoicing may become a tangled mess due to many reasons. These reasons can be subscription models, delayed payments, complicated pricing, and more. These invoicing problems can erode your revenue and drive consumers away. About 78% of customers back out from a sale due to a poor experience. A well-stitched billing process is not just a want but a necessity to improve your revenue and efficiency.
If you're a startup looking to reduce SaaS sales friction and transform billing into a strong growth engine, you've landed at the right place. These SaaS billing best practices can streamline your procedures, increase revenue, and make your customers happy.
Before diving into the best practices, let's explore the possible challenges causing the billing friction.
Challenges in SaaS Billing
The growing significance of SaaS is revolutionary, but it's not without its challenges. SaaS companies survive on the promise of accessible subscriptions and a regular income stream. Yet, beyond the surface, SaaS billing systems can also have many problems that can hurt your revenue if not handled well.
1. Invoicing issues
Invoicing and billing can be a big challenge for SaaS companies because more factors are at play than other business models. Additional factors, like trial periods and subscription discounts, complicate invoicing even further. Additionally, invoices can leave your customers frustrated and impact customer satisfaction if you're doing any of the following:
- Missing information, erroneous pricing, and confusing jargon.
- Missed or delayed invoices or other frequent inaccuracies
- Incorrect pricing
- Confusing invoices
The most common solution to invoicing problems is to use dependable software to automate your billing. Using an efficient SaaS billing software can transform the entire billing process. Automated invoices give clear breakdowns and provide several payment choices for consumer convenience.
2. Failed Transactions
Some customers choose to stop paying. However, some customers intend to pay but can't for various reasons like insufficient funds, maxed-out credit cards, and even connectivity issues. This is one of the most common problems in SaaS billing and happens frequently in the volatile world of digital transactions.
68% of companies that receive more than 50% of their payments after the due date suffer from cash flow problems. Payment failure is also one of the leading factors for involuntary churn. If not dealt with efficiently, this problem can cost you customers (and the revenue that comes with them).
3. Complicated pricing models
A complicated pricing strategy is a sure-shot way of making customers turn towards your competitors. Besides, you might find yourself waving goodbye to potential revenue when you offer hefty discounts on annual contracts, undervalue your product, or fail to seal the deal because you couldn't quite meet a customer's specific pricing needs. These situations are widespread and can substantially impact your bottom line.
Choosing the suitable pricing model for SaaS can be a complicated process. Finding the balance between providing value and ensuring profitability is the actual problem.
4. Scalability
SaaS scaling has a challenging paradox: You must scale your billing infrastructure accordingly. Handling a more extensive customer base, increased transaction volumes, and evolving business models can strain existing systems. On top of that, adapting pricing, promotions, and extra features adds to the intricacies of SaaS billing. All too often, this snowballs into significant invoicing errors, poor planning, and a less-than-stellar customer journey.
The absence of a scalable billing infrastructure can impact not only your bottom line but also customer experience and retention.
5. Operational inefficiencies
Time-consuming manual billing processes utilize valuable human resources for recurring and repetitive tasks. These also do not offer actionable insights to track product demands, the impact of pricing changes, and the impact of process implementation. Such practices stifle creativity and innovation, rendering important work seemingly purposeless. Blocking time and resources can become burdensome without streamlined, automated billing systems.
6. Subscription management
In the ‘Subscription Economy' world, billing and accounting for subscriptions may quickly become a tangled web if not handled correctly. Trials that have expired, downgrades that have been forgotten, and unintentional upgrades can all lead to confusion and aggravation.
7. Keeping buyer data safe
It is your responsibility to prioritize security and implement robust security measures. Assuring consumers to give you their private information and secure their personal data can be a tough fight against ever-evolving cyber threats. This is one of the problems that, if it persists, can take away a recurring user as well.
8. Product bundling
Product bundling (if done correctly) can significantly increase the overall value proposition for customers and drive better sales. However, they also present their own set of challenges. Determining the correct pricing for bundled products, understanding the unique value proposition of each bundle, and integrating and managing multiple products within a single bundle can be difficult. Additionally, some customers may have specific requirements or prefer a customized set of features, which can be challenging to accommodate. Another challenge is balancing the flexibility for customers to tailor their bundles while maintaining simplicity.
Turning Challenges into Competitive Advantages
SaaS solutions will make up 85% of all business software in 2025. With this kind of scalability, overcoming the possible billing challenges might appear intimidating. However, by developing efficient pricing strategies and enhancing customer retention, you can conquer these challenges and prepare your startup for success. Let's explore how to accomplish this.
1. Decide on a suitable pricing model
Over 94% of B2B SaaS pricing leaders update pricing at least once per year. However, dealing with the pricing structure and selecting the right pricing comes with its challenges. Value-based pricing may not always perform well in the SaaS world due to lengthy contract periods, and flexible pricing can introduce its own issues due to the unique nature of your SaaS business model.
Choosing the right SaaS pricing model can significantly influence your revenue generation capacity. The correct model enhances customer perception, interaction, and overall satisfaction.
You can choose amongst the below pricing strategies:
- Usage-based Pricing: Best suited for companies with fluctuating usage needs.
- Tiered Pricing: Ideal for companies with diverse customer segments and needs.
- Flat-rate Pricing: Simplicity defines flat-rate pricing, where customers pay a fixed fee regardless of usage or features.
- Freemium Pricing: Utilizes a two-tier structure. Offers basic features for free and premium features for a paid upgrade.
- Per-user Pricing: Popular in B2B SaaS, especially for team-oriented products.
2. Manage product bundles
Managing product bundles to reduce SaaS billing friction can be a complex task. But if done right, it leads to increased customer value, higher average transaction values, and decreased customer acquisition costs. Product bundling is based on grouping multiple products and selling them as a package. You must understand your goals and what you want to achieve to build enticing product bundles. Once you have a set objective, thoroughly understand the buyer persona and their needs.
The key to setting the right pricing of your product bundles is to determine your discount carefully. Make sure to offer a discount that is attractive enough for customers to purchase but also profitable for you. Review your KPIs to assess your pricing strategy.
Some other SaaS billing best practices would be implementing an easy-to-use subscription management system, providing reminders for future renewals, and offering simple self-service alternatives for changes.
3. Implement new-age payment options like BNPL
Modern payment options like BNPL are changing how SaaS companies close high-value deals and long-term contracts. B2B BNPL is a relatively young concept but is growing rapidly. It can shorten your sales cycles and reduce SaaS conversion friction.
A lengthy and complex billing process hurts the bottom line, and companies struggle when buyers can't afford to pay the full contract value upfront. BNPL eases the entire sales process and allows you to get paid upfront for the full product or annual contract value. At the same time, the customers can pay in comfortable quarterly or annual installments.
A real-world example of this success is CIENCE, a B2B lead generation platform. By implementing BNPL, CIENCE achieved a remarkable 50% reduction in its sales cycle. CIENCE also generated $3.7 million in the pipeline, transitioning from 90-day contracts to annual contracts and increasing conversions on high-value deals from single digits to 50%
4. Create a growth-friendly billing structure
When customers grow, your billing structure must grow with it. A legacy billing infrastructure may struggle with the influx of complex new data. However, modern bling systems are built with subscription complexity in mind. They grow with you, efficiently supporting new features and price changes. When you opt for a billing system, make a checklist. You'll want:
- Automated recurring billing and invoicing
- Product lists
- A hassle-free payment gateway
- Be ASC 606-compliant for recurring revenue
- Multi-currency
- Deep reporting capabilities
- Minimal implementation times
The correct billing system can make a massive difference in the speed at which your business scales. Remember, easy payments often translate to more transactions, and a smooth SaaS billing process enhances customer trust.
5. Allow for payment flexibility
Don't give potential customers the payment methods they prefer, and you risk losing them altogether. That said, if your payment system isn't flexible, it will push your prospects back and deter you from what's most important to you—growing your business. Different people prefer different payment options and know what suits them and their needs. Giving them options gives your users freedom of choice and allows you to reach a global audience and wider customer base.
6. Handle failed payments
You need to automate your invoice collection process to minimize involuntary churn owing to failed transactions. Be sure to automate your dunning process, inform customers of outstanding balances, and let your customers know immediately if their card is declined. A comprehensive system that automates all of the above and sees a holistic view of their accounts receivable (AR) health in a single interface should be a significant part of your SaaS billing strategy.
Some other best practices to minimize revenue leakage are:
- Tackle challenges like delays in sending payment requests or inefficiency in retrying failed transactions using automation.
- Send your customers regular payment and renewal notifications, preventing churn and increasing revenue recovery.
- Set up automatic invoicing and payment collection.
- Ensure that payments are accurate and keep customers informed about billing-related matters.
7. Recognize Revenue with precision
Correct revenue recognition is non-negotiable for startups, where funds often run tight. One mistake that many SaaS startups make is to consider cash as revenue. However, SaaS revenue recognition poses unique complications and challenges. Given the potential repercussions, it is essential for founders to align their systems and accounting processes with the guidelines and stay compliant with the ASC 606 standards.
An automated invoicing tool can help you precisely recognize revenue and achieve smart financial management.
Reduce SaaS billing friction with Capchase
Streamlining SaaS billing operations reduces payment friction and involuntary churn from failed transactions or billing issues. You can revamp this vital part of your operations with the appropriate strategies and resources. Capchase Pay offers a comprehensive B2B BNPL solution tailored for SaaS companies that can help you streamline your billing operational processes, making transactions quicker and more efficient.
Apart from providing the working capital you need, Capchase Pay adjusts to your customer's unique requirements. It seamlessly fits into your current processes and takes care of your billing and collections tasks.
Following are some tangible benefits organizations have seen by implementing this out-of-the-box BNPL solution.
1. Easier billing and collections
Capchase Pay streamlines your billing and collections by handling all operational processes for every transaction. It expedites and automates various payment and billing processes, so you never have to worry about missing or calculating your debt. Buyers automatically agree, pay, and manage their subscriptions. This ensures timely payments and frees up valuable time for finance, sales, and operations teams to focus on strategic initiatives, minimizing administrative burdens.
2. Close deals faster
Capchase Pay significantly shortens SaaS sales cycles, potentially reducing them by up to 50%. Buyers are more inclined to close deals swiftly when given the option to preserve cash flow through comfortable payment terms.
3. Negotiate terms, not price
Capchase Pay shifts the focus of negotiations from price to product features, delivery terms, and other variables. This accelerates negotiations, leading to more successful deals and reducing buying friction. It eliminates the need for sales teams to spend time and energy calculating custom payment plans, interest rates, or financing options.
Final Thoughts
In an ideal world, all invoices are paid on time, and you wouldn't need to chase any payments. Unfortunately, in the fast-paced world of SaaS, sales cycles are longer than ever, and businesses often grapple with delayed invoices, failed payments, complicated pricing, and scalability challenges.
It doesn't have to be this way. To nip revenue loss in the bud, founders can tackle these challenges head-on by adopting the SaaS billing best practices and implementing the right tools. With solutions like Capchase Collect, you can view overdue payments on a single dashboard and directly integrate them with your accounting platform. It displays the most crucial data, plus client segmentation, so you can quickly build and execute a cohesive SaaS billing strategy for your SaaS company.
A well-structured SaaS billing software solution like Capchase Pay streamlines the entire billing process, from automating invoicing and payment collection to advanced subscription management. Leveraging customer usage data and billing data enables SaaS businesses to refine their billing strategies and adapt to customer preferences and customer trends. Stand out from other SaaS companies by proactively providing customers with the flexible payment options they want.
Want to know how Capchase can help you reduce your sales cycle by half and close more high-value deals? Book a demo with our team and learn more!
FAQs
1. What makes SaaS billing different?
Due to the recurring nature of services and the complexities caused by customization, SaaS businesses need specialized software to manage the billing process. Therefore, such systems should be able to handle the nuances while keeping it simple for the customers to track their usage and plans, which a traditional billing platform cannot handle. Utilizing a dedicated comprehensive SaaS billing system creates streamlined billing processes and improves your customer relationships.
2. Are collections a part of SaaS billing?
Yes. In SaaS, billing comprises invoicing customers using the software, managing subscription plans, and collecting payments. Collections are the process of getting paid for products purchased or services rendered. Hence, collections are indeed a part of the SaaS billing process.
