Subscription Billing: The shift from ownership to service-based models

The world is increasingly favouring hiring services over buying products outright. Concepts like Software as a Service (SaaS) and Mobility as a Service (MaaS) are becoming the norm, reflected in the endless multitude of apps on our mobile devices.

Adapting to new administration and billing processes

This shift in “ownership” requires a reimagined approach to administration and billing. Instead of issuing one-off invoices, we now deal with billing cycles. Invoices must be raised at specific intervals, often with adjusted amounts due to factors like indexation.

Transitioning to these modern billing practices without advanced software can be quite daunting. However, with the right tools, navigating these complexities can become smooth, efficient, and straightforward.

Key requirements for subscription billing

  • Adaptability: A billing system must be flexible. As subscription billing continues to evolve, sales departments will innovate and create new formats that our systems need to integrate effortlessly.
  • Accurate contract registration: Clear records are essential for accurate billing. This includes tracking when a subscription starts, the billing cycle (monthly, yearly, quarterly), any one-off charges, and start dates.
  • Varied billing patterns: Subscription billing can vary significantly. It may follow a straightforward pattern with invoices generated exactly a month or year after the start date or a more complex system requiring pro-rata calculations to align with standard billing periods.
  • Indexation management: A sophisticated billing system must handle indexation. This involves specifying when indexation applies and differentiating by product, country, or customer. Adjustments should be automatic yet flexible, such as not applying indexation in the first year.
  • Revenue recognition: For billing cycles longer than a month, large companies often require revenue recognition mechanisms. Revenue from a yearly invoice should not be booked all at once but spread across the invoice period, with monthly entries of 1/12 of the total income and the remainder in a revenue recognition account.
  • Handling cancellations: When a customer cancels a subscription, the billing system should automatically issue a credit note, calculated based on the early termination date relative to the original renewal date. This process must account for revenue recognition impacts, ensuring everything is managed accurately, efficiently, and automatically.

The need for advanced billing systems

Simple, hard-coded billing systems often struggle to meet these emerging needs. However, a state-of-the-art, highly configurable billing system can simplify this complexity. Advanced solutions streamline subscription billing, reducing manual work and improving accuracy and completeness.

As we move towards a service-based economy, adopting advanced billing systems is both a necessity and an opportunity. These systems enable us to address evolving customer needs, streamline operations, and ensure financial accuracy. With the right tools, we can turn challenges into opportunities and transform complexity into simplicity, paving the way for a more efficient and responsive future.

Rob J. van Dijk is the director of ICORP, a leading company specialising in the development of highly adaptable SaaS solutions designed to manage complex financial and administrative business processes. Learn more at www.icorp.nl.