Top Challenges in SaaS Billing and How to Overcome Them

SaaS billing has to be able to serve the same function as you’d expect in traditional businesses, like receiving payments, invoicing, and storing payment information.

It should handle business transactions for startups and enterprises alike and provide different subscription plans for their diverse needs. 

However, billing systems can also have numerous problems that can seriously damage businesses if they’re not handled properly. 

In this post, we’ll discuss the most common billing problems you can encounter in SaaS billing so that you can take precautions for your company. 

Flexibility in Pricing Plans 

Flexible pricing can carry multiple challenges. 

When it comes to pricing, it has to be strategic to capture the perceived value and maximize profitability. It takes time and effort to decide on a suitable pricing model

If you offer different packages with different prices, you’re complicating your pricing strategy and revenue recognition. 

It’s difficult to have a clear marketing pitch for a product with different prices, and customers might be confused about what they are paying for. 

It gets even more complicated if you want to offer custom prices. 

It’s a foolproof strategy to attract enterprises and other high-value customers, but everyone wants things customized to their needs, even smaller businesses. 

One solution to this problem is implementing a tiered pricing model with fixed prices on lower tiers and custom options with more flexibility at higher levels. 

pricing model

Custom levels will be more expensive, so some of your customers will settle for your lower-tier offerings. 

There are plenty of other options you can look at when coming up with a great pricing strategy. 

However, if you think that none of the ‘’traditional’’ SaaS pricing models apply to your business, there’s another solution. It’s called hybrid pricing

You can include elements of different pricing models and adapt them to your needs. 

That way, you can include the features your customer wants and offer prices they’re willing to pay. It’s the best way to personalize your offerings further. 

Having flexible prices can become challenging without the right pricing strategy.

Accurately Recognizing Revenue

SaaS has a unique business model which complicates revenue recognition. 

Subscription-based businesses have difficulties when it comes to accurately recognizing revenue and accounting. 

Standard accounting principles don’t apply in SaaS because the service they provide is stretched out over a longer period, and the incurred revenue can only be recognized after that period ends. 

There are other factors to consider.

They include things like customers unexpectedly leaving, upgrading, or downgrading their plans and errors with managing high volumes of data. 

There are several things SaaS companies have implemented to combat recurring issues. 

One is to build their billing system around GAAP to better align their practices with standard accounting. 

In that way, they’re obeying the law and providing accurate data for their accounting and investing needs. 

Many have also adopted automation for tasks that require a lot of effort and managing data. 

Keeping track of customer’s contracts is essential, especially as you grow your customer base. 

Revenue recognition can be complicated, but if you understand standard principles and adopt the right systems, you won’t have problems managing your finances. 

Managing Product Bundles 

Manage your product bundles to maximize profits. 

A trend that has spilled from traditional retailers and e-commerce businesses into SaaS is product bundling. 

This approach is based on grouping multiple products and selling them as a package. 

It is a great marketing strategy and an incentive for potential buyers. 

For one, it’s a great way to introduce customers to your core product and offer new and relevant additional products. If you successfully bundle your products, you can offer customers more value. 

That brings us to the first problem with product bundling. 

Not many companies understand which products to bundle to offer more value. 

It comes down to understanding the buyer persona and what their needs are. 

bundling

While offering your core product and an additional email marketing feature might look valuable to you, your customers probably won’t opt for it. 

That’s why you have to conduct thorough research to understand which combinations of products your users would be most likely to benefit from.

Bundling products is highly customizable, and you will want to attract different types of customers.

Still, keep in mind that if you offer your products individually at their regular price, your sales might drop. 

Another underlying problem is how to track those sales for accounting purposes. Do you break down prices for individual products, or do you count them as a separate offering? 

Sometimes a great offer can become a great headache. 

Before you start bundling your products, determine what you want to achieve. 

Do you want more loyal customers? Attract new markets and generate leads into your funnel? Can you properly manage your accounting with bundled products? 

Once you establish your metrics and goals, you can successfully leverage the benefits of bundling products. 

Scaling the Billing Infrastructure 

As your subscription plans get complicated, your billing system should grow with it. 

When you decide to integrate a billing system for your business, you start with simple subscription plans, and your billing system reflects the ease of use. 

Problems arise when customers’ numbers grow and you have to implement a variety of customizable plans and add-ons.

Your billing system may struggle with the influx of new and complex data, so you need to spend more time coding to accommodate your needs. 

Building a billing solution in-house can seem like a sensible idea since you have more control over your system.

However, your development team will never be as dedicated to it as they will for your core product. 

This may result in a system that is so prone to bugs that it becomes expensive to maintain.

An ineffective billing system can also become a significant cause of churn. 

If you want to scale fast, your billing system has to be adaptable to quick changes. 

Therefore, third-party billing systems are a better solution in the long run. They’re built with subscription complexity in mind, so you can adapt them as your business grows. 

A good billing system should support your changing business needs, grow with your customer base and support your subscription complexity. 

Integrating 3rd Party Solutions 

If you want to integrate third-party solutions for your billing system, look into possible challenges. 

Payment processing for SaaS is the key metric connected to growth and critical aspect of revenue collection. 

It is vital to have a smooth and secure process for both your customers and your business. With a good payment process, you can improve your acquisition and conversion rates. 

Improved user experience is one of the leading reasons why some SaaS companies decide to use third-party solutions for their payment processing.

It’s cheaper and often more effective than building an in-house system. 

However, it doesn’t come without problems of its own. The main one is difficult integration with the core product. 

For instance, when you integrate another company’s solution, you have to share your data for the solution to work. 

Sometimes this can carry high security risks and lead to non-compliance with relevant state regulations concerning user data. 

When you look for a good third-party solution for payment processing, consider those with ready-to-go integrations that help you track and process different types of payments. 

It should also offer more automation and grow with your organization. 

Regpack is a solution that offers all of the essentials for a great payment process. 

It integrates with BlueSnap, a global payment processing platform, which is also PSD2 and GDPR compliant. 

You can rest assured that you have a secure, easy-to-use, and efficient solution for your payment processing needs. 

If you want to learn more about billing software and consider additional options, read this article

Managing Multiple Currencies 

Expanding globally can be a good business idea, especially if you want to reach untapped markets and position yourself as a leader in those areas. 

However, global companies face difficulties with managing multiple currencies. 

Localized pricing can help you in your retention and conversion strategies. 

When customers see prices in their local currency, they better grasp your product value, and their experience is more personalized. 

The challenges your company will likely face when working with multiple currencies include the following:

  • Local restrictions and shipping costs—additional costs need to be compensated for and converted to the customer’s currency.
  • International exchange rates—monthly differences in billing can be huge for large customers because exchange rates are constantly changing. 
  • Conversion fees— payment processing networks often charge extra for transactions involving foreign financial institutions
  • Cart abandonment—customers might opt out at the last minute if the prices are higher than they expected because of the single currency use (usually USD)

The solution for all of these problems is implementing multi-currency support and automating your price display. 

Use geolocation technology to automatically detect your customer’s location and personalize their experience for higher conversion rates and increasing sales. 

Nevertheless, while you’re busy localizing your prices, you have to consider the pricing strategy that reflects the economic reality and cost expectations in different regions. 

What might be a reasonable price in Germany will not be possible for a customer in Egypt. It all depends on their living standards and the country’s GDP. 

Managing multiple currencies starts with adopting the right software solution and accommodating your customers’ preferences. 

Offering Multiple Languages 

Consider offering multiple languages in your invoices. 

Having your payment process and invoicing in the local language can help your business a lot. 

While it’s easy to set everything in English, as it’s the most used language for business, having your billing information in the customer’s local languages can help foster closer relationships with your company and increase sales. 

Nevertheless, benefits also come with specific challenges. 

Some countries have regulations regarding invoicing in other languages. Some only accept invoices in English, while others accept invoices in multiple languages. 

Like you would with an invoice in English, you need to provide essential information, but it has to be accurately translated. 

That information has to include

  • Unique invoice number
  • Seller’s name and contact details
  • Customer’s name and contact details
  • The total amount and individual costs
  • Date of issue
  • Payment terms and taxes (if applicable)

Translating legal documents can be a hassle and incredibly time-consuming, so your best option is to invest in an invoicing software that has a feature for multiple language invoicing. 

Increase your positioning in the foreign SaaS markets by adopting invoicing in multiple languages and automate complex processes. 

Achieving Top Payment Security

Security in SaaS is one of the top challenges for the industry. 

The most prevalent security problems are fraud, cashback, and identity theft.

With almost 77% of companies and 53% of customers reporting that they’ve been victims of fraud, it’s no wonder that people are increasingly suspicious and careful about their online activity. 

SaaS is extremely vulnerable to data breaches and information leakage. 

Any problems with security can shatter customer’s trust in your company and cause irreparable damage for continuing your business. 

There are several things you can do to prevent security problems: 

  • A robust privacy policy—have a transparent overview of all the protocols your company has taken to secure customer’s data. Here is an example of a security protocol.
  • Secure transactions—use Secure Socket Layer (SSL) encryption to avoid exposing your customer’s data to third parties.
  • Payment gateways— make sure you’re PCI compliant and offer 3D security so you can process payments safely.

Prioritize payment security, so you and your customers don’t fall victim to online predators. 

Choosing the Billing Frequency 

Billing frequency can impact your customer retention. 

Your work isn’t done once you implement the right pricing strategy and billing software. 

Your next move should involve choosing the right billing frequency. 

Receiving invoices is important, but receiving them too frequently can cause friction with your customers and spur them into closing their accounts. 

billing frequency

With every new bill they get, they will re-examine the value they get for their money. The more that happens, the chances of churn increase. 

You have to choose what’s best for your customers, but also what is most savvy business-wise. 

The most popular choices are weekly or bi-weekly, monthly, quarterly, and annually. 

For SaaS, the best solution is using monthly or annual billing frequency. This correlates to most subscription plans used in SaaS and makes the most sense in helping businesses grow. 

Find a reliable automated solution that will handle different accounts and subscription plans to bill accurately and on time. 

Choose the best solution that will satisfy your customers and boost your business. 

Customer Messaging and Notification Management 

Customer communication is a necessary feature of a good billing system. 

We’ve mentioned that third-party billing systems have to have integrated communication channels with customers. 

This means that they need to send timely and relevant messages to customers via email or in-app notifications. 

Customers have to be updated about any changes in their transactions and payment processes. This can also help you keep track of their payment history. 

The best way to efficiently manage customer’s billing accounts is to automate the systems with triggered email notifications that will track their behavior and information (such as expired credit cards). 

This will ensure higher customer satisfaction and result in less need for customer support. 

One thing to keep in mind when you set up automated processes is to allow customers a way to contact you. 

Include an email address or a telephone number in your dunning emails and other notifications. 

For critical interactions, which include changing billing information, you have to enable quick access to their account through their email or in-app. 

Offering automatic log-in can decrease friction and speed up the payment process. 

An effective messaging system for your payment process can save you time and stress with frequent payment problems. 

Invoicing 

Mistakes in invoicing can set back your company and stifle growth. 

If you make frequent mistakes in your invoicing you’re setting yourself up for failure because you will not get paid or be able to cover your expenses on time. 

This can cause mistrust in customers.

The most frequent problems with invoicing are: 

  • Missing invoices—sometimes invoices don’t get sent to customers 
  • Confusing invoices—information on the invoice can be complicated if you have multiple products and use jargon. 
  • Missing information—if you don’t provide data for processing invoices, they will not get paid.
  • Frequent inaccuracies due to manual invoicing—include incorrect pricing and other user data.

The standard solution to these problems is an automated billing system that will send invoices on time, pull accurate data, and alert you when the invoice has been opened. 

Repeated mistakes in invoicing can seriously impact the cash flow and financial health of your business. 

Handling Taxes

Handling taxes can be difficult for large enterprises, especially those that conduct business globally.

Taxes are a necessary part of doing business.

However, dealing with them efficiently can be challenging in SaaS. 

Apart from issues related to recognized revenue due to its unique business model, global companies have another set of difficulties to deal with. 

First of all, a country’s taxation laws and regulations can frequently change, making it difficult to stay on top of them. 

Another set of problems pops up when you operate in multiple regions with different laws. 

Different countries have conflicting definitions of SaaS (do you tax it as a service or software?), complicating the matter further.

You must understand tax laws and regulations in every country you sell your products in. 

In some countries, you’ll be liable to a 100% taxation rate, but in others, you won’t have to pay anything. It’s very easy to make a mistake, and end up having to pay fines for incorrect tax filing. 

The best way to deal with taxes is to plan and have the correct information. 

If you use the right accounting methods, you’re already halfway there.

Then, you need to familiarise yourself with regulations in each country where you sell products. That way, you’ll know how much you owe and if your income can cover it. 

If you’re unsure about different tax filing methods (some countries allow online tax returns, but others require paperwork), you should always consult a professional. 

Accountants or tax consultants are your helping hand in respecting deadlines and regulations as a growing business. 

Taxes can be difficult to understand, but paying what you’re due will become easy if you put the right systems in place. 

Handling Failed Transactions 

Failed transactions are the most common problems in SaaS billing. 

They are the most annoying, yet among the most easily fixable issues when it comes to billing systems. 

If you don’t deal with them efficiently, you can lose many potential customers and churn existing ones. 

When it comes to failed payments, the core solution is damage control. 

With first failed payments, you need to inform your customer and suggest options for rectifying the situation. Professional and straightforward copy with a clear CTA will spur them into action. 

When payment is due, and you notice cards are expired, have automated emails to remind your customers about the incoming issues subtly. 

Finally, if you had multiple dunning cycles to remind your customers about their payment obligations, you still shouldn’t consider canceling their subscription. 

If you do, you’ll throw all of your chances of getting them back. Instead, deactivate their account and prepare the ground for their eventual comeback. 

Regpack educates customers about their payment issues, providing a code and an explanation for each type of error.

With the right protocols to deal with failed transactions, you’re bridging the gap between what you’re owed and how much you’re collecting. 

Conclusion

SaaS billing can be riddled with problems if you don’t clearly understand the most common problems. 

Some of them are easily preventable if you set up efficient solutions and automate your process. Others depend on your business model and goals. 

If you want to manage your finances successfully, start with a good billing infrastructure that will grow with your subscription complexity and offers. 

Then you have to invest in payment security to protect yourself from possible data breaches and protect your customers from data theft.

Other significant challenges you have to keep in mind are how you handle taxes and failed transactions. These will have some of the biggest impacts on your revenue. 

After that, you can deal with minor tweaks in your billing processes, such as managing multiple currencies and customer communication. 

Financial stability starts with the prevention of the most common SaaS billing challenges. 

About The Author
Asaf Darash
Asaf Darash
CEO and founder of Regpack

Asaf, Founder and CEO of Regpack, has extensive experience as an entrepreneur and investor. Asaf has built 3 successful companies to date, all with an exit plan or that have stayed in profitability and are still functional. Asaf specializes in product development for the web, team building and in bringing a company from concept to an actualized unit that is profitable.

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