SaaS Billing Process, Best Practices, & Solutions for 2023

Billing processes are like the plumbing of a SaaS business.

In world-class organizations, all the pipes flow smoothly and those in both finance and accounting can focus their time on strategic initiatives. But when the plumbing isn’t sound, finance and accounting have to sink more time into plugging leaks and less time supporting strategic projects across the org.

Getting your SaaS billing process right is critical to optimizing cash flow for the business and maintaining the most granular understanding of your top-line revenue. But it’s easier said than done. Use this guide to understand everything from the basics of SaaS billing to advanced MRR reporting, pricing strategy, evaluating billing systems, and more.

Understanding SaaS Billing

The billing process in SaaS involves invoicing and collecting payment from customers according to the demands of recurring, subscription-based revenue models as well as usage-based pricing components as necessary.

The recurring revenue model that makes SaaS companies so scalable and efficient is exactly what complicates billing processes. The traditional concept of invoicing is still involved, but with added nuances in payment structures, accounting compliance requirements, and revenue reporting.

Challenges and Complexities of SaaS Billing

The basic workflow of a SaaS billing process looks much like any other business — you generate an invoice based on the terms of a contract, deliver that invoice, collect payment, reconciling payment with invoice terms, and properly accounting for the revenue in your month-end close process.

However, as you build out the architecture of that billing process, there are a few challenges you should be prepared to address.

Matching Your Billing Process with Your Business Model

The nuances of your billing process and the systems you put in place will vary depending on your specific business model.

A sales-led org selling traditional subscriptions can get by with what mostly looks like a traditional invoicing process. And as a result, those businesses can reliably use a simple billing tool like the one built into QuickBooks Online. But a product-led organization taking credit card payments will need more specialized processes. This requires a billing tool like Stripe or Chargebee and a process in place to understand their complex data architectures.

Handling SaaS Revenue Recognition

The addition of ASC 606 to GAAP accounting has introduced more specificity to the way SaaS businesses recognize revenue in their financial statements. Understanding the difference between when you bill for products/services and when you actually deliver those products/services has to be a core component of your billing process. Some billing systems offer automation for SaaS revenue recognition, which should factor into your choice of tools.

Defining ARR and MRR for Your Business

Your billing process plays a critical role in how you define monthly recurring revenue (MRR) and annual recurring revenue (ARR) in your business.

This may be straightforward for a SaaS company selling annual contracts. However, if you’re selling month-to-month products as well as collecting a mix of services, usage-based, and subscription revenue, defining MRR and ARR becomes complicated. Deciding how you’ll handle things like refunds, account credits, one-time payments, discounts, and cancelation dates can make or break the relationship between billing workflows and reporting.

Choosing the Right Billing System

SaaS billing software is complex and highly specialized. Compared to a customizable system like your CRM, billing systems are much more structured and are notoriously difficult to understand. Having to switch billing systems can be a significant drain on your finance and accounting resources, so you’ll want to get this choice right the first time. If you’re evaluating SaaS billing software, fast-forward to that section of our guide to learn what to look for.

4 Best Practices for an Effective SaaS Billing Process

The impact of the challenges listed above (and how you address them) will depend on the specifics of your business model. However, the following best practices will put you on the right path to building a solid billing architecture regardless of the unique nuances of your business.

1. Crowdsource Feedback from Your Customers

In many respects, your billing process is less about the financials and more about your customer relationships. Any over-engineering, unnecessary complexity or poor user experiences can make a significant difference in customer satisfaction. That’s why the best way to set the strategy for your SaaS billing process is to start with customer conversations.

Find out what kinds of payment terms make the most sense for your ideal customers. Get a better understanding of where they’d prefer more flexibility and choice in billing terms. Learn what frustrates them about how other SaaS companies manage the billing process. All of this feedback will help you come up with a structure that keeps your best customers happy.

2. Align Sales Team Incentives with Desired Billing Terms

Your sales team negotiates contract terms with prospects as they’re about to become customers, which includes agreements about billing structure and payment terms. Once you have a solid strategy in place for billing, you’ll want to align commission structures and spiffs with that strategy. Incentivize your reps to push accounts to sign on for the payment terms you’re looking for. This might mean approving larger discounts for companies that pay upfront or sign on for net-30 payments instead of net-60.

3. Automate Invoicing and Collections

Billing and collections processes are perfect use cases for automation. Any system you invest in should be able to natively handle recurring invoices according to customer contracts while also providing flexible payment methods for customers. Providing accurate, timely invoices month after month is great for both your cash flow and for maintaining customer satisfaction. Look for tools that will also automate dunning emails so you don’t have to manually review every instance of late payments — it’s easy for some to fall through the cracks that way.

4. Analyze Billing and Collections Data to Manage Proactively

The value of billing and collections data is only as strong as its freshness. Looking at data once per month after the close cycle and trying to get insights from info that’s been stale for multiple weeks will lead to reactive management. You want real-time insight into how AR aging, days sales outstanding, and other collections metrics are trending for your business. If you can layer in customer usage data into that analysis, you can start to understand how changes to your pricing strategy or billing process could impact revenue and efficiency.

The Need for SaaS Billing Integrations for Finance Teams

SaaS billing architecture is just one piece of a very complex puzzle for finance teams to understand all of the financial and operational data across a business. That’s why it’s so important to ensure your SaaS billing data integrates with the rest of your critical source systems — namely your CRM and ERP.

Without a way to pull granular data out of your billing systems and integrate with the rest of your financial and operational data, you’re stuck relying on native reporting tools in those billing systems to understand many revenue and collections metrics. That’s a problem considering even a tool like Stripe merely provides high-level overviews of invoice totals without much insight into the accuracy of those numbers.

Mosaic acts as a connective tissue between your critical source systems — your CRM, ERP, HRIS, billing systems, and data warehouses — to ensure you always have full visibility into all data at the most granular level possible.

Our data integration experts have dug deep into the architectures of tools like Stripe and Chargebee to truly understand how to ingest that data and make it more accessible to you. Our standardized approach to mapping revenue, billing, and collections data from SaaS billing tools will give you a level of control over planning and analysis that you could never get from individual source systems alone.

Even the smoothest, most customer-friendly billing process will fail if you can’t dig into the data and get a granular understanding of what’s going on in your business.

We’ve taken the time to understand and automate SaaS billing integrations so you don’t have to. Reach out for a demo of Mosaic to learn how you can spend more time analyzing data and less time manipulating complex exports from billing systems.