Billing services automatically create invoices, track payments, and manage overdue accounts for businesses. Using these services can have a big impact: businesses that use Stripe Billing, for example, reported up to a 40% decrease in manual work. Whether you’re running a startup or part of a larger organisation, a billing service can help you reduce administrative burdens, improve cash flow, and ensure timely payments.
Below, we’ll explain how billing services work, the pros and cons to consider, and how much billing services cost.
What’s in this article?
- What are billing services and how do they work?
- What types of businesses benefit from billing services?
- What are the pros and cons of billing services?
- How much do billing services cost?
- How do billing services handle overdue payments?
- What factors should you consider when choosing a billing service?
What are billing services and how do they work?
Billing services manage and process financial transactions between a company and its customers. They help businesses collect payments and manage records related to those transactions.
The billing process typically begins when a customer makes a purchase. The business creates an invoice with the amount due, the items or services provided, and any applicable taxes or fees. The billing service sends this invoice to the customer electronically or by mail.
Once the customer receives the invoice, they are expected to pay by a specific date. The billing service tracks these payments to ensure the company receives them. The service might also manage follow-ups or send reminders to encourage payment.
In many cases, billing services are automated, with software systems that create invoices, process payments, and integrate with accounting systems. These can reduce the potential for human error and speed up the billing cycle. Some billing services also handle recurring payments, such as subscriptions, by automatically charging the customer at regular, preset intervals.
What types of businesses benefit from billing services?
Many businesses can benefit from billing services, especially those that need to manage regular or complex billing processes. The business types that usually rely on billing services include the following:
Subscription-based businesses: Companies that offer subscription services – such as streaming platforms, magazines, software-as-a-service (SaaS) providers, gyms, and subscription boxes – benefit from automated billing services. Subscription businesses use these services to handle recurring charges, renewals, and customer account management efficiently, reducing the risk of billing and payment processing errors.
E-commerce and retail: Online stores and physical retailers that sell products at high volumes benefit from using billing services to handle one-time payments, invoicing, and returns or refunds. These services often require integration with payment gateways and accounting software.
Freelancers and contractors: Independent contractors, such as consultants, designers, writers, and developers, often send invoices for their services. Billing services can simplify this process by automating invoice creation, tracking payments, and offering clients various payment options.
Educational institutions: Billing services offer schools, colleges, and training centres the ability to manage tuition, registration fees, and donations. Billing systems can accommodate one-time or instalment payments, track overdue payments, and integrate with student management systems.
Professional services: Lawyers, accountants, and other service providers often require billing services to track billable hours, create invoices for services rendered, and manage payments. Billing systems ensure all billable work is accounted for and processed accurately.
Manufacturers and distributors: Companies that sell products to wholesalers, retailers, or directly to customers often use billing services to handle large transaction volumes and track payments for goods delivered on credit or under contract terms.
What are the pros and cons of billing services?
Billing services can provide significant advantages for businesses, but they come with potential downsides. Here’s a breakdown of the pros and cons.
Pros of billing services
Efficiency and automation: Billing services automate time-consuming tasks such as generating invoices, processing payments, and sending reminders for overdue bills. This accelerates the billing cycle and can reduce administrative work, allowing businesses to focus on core operations.
Accuracy and reduced risk of errors: Automated billing systems minimise the potential for human error. This is especially beneficial for companies that handle large transaction volumes or have complex billing structures. Automated calculations, such as for taxes and discounts, help keep invoices accurate and consistent.
Improved cash flow: Timely, accurate billing and automated reminders for overdue payments can help businesses get paid faster. Automated follow-ups lower the chances of missed payments, improving cash flow and reducing the need for manual intervention.
Scalability: As a business grows, billing can become increasingly complex. Billing services can scale with the company, handling more transactions and customers without additional staff or resources.
Customisation: Many billing services allow businesses to customise invoices, payment terms, and reports. For instance, businesses can choose the frequency of invoices (e.g., monthly, quarterly) and specify payment options.
Compliance and security: These services are built to adhere to legal and regulatory standards, including tax rules and data protection laws. They often include features such as encryption and secure processing to keep sensitive financial information safe.
Integration with other systems: Billing services are often designed for easy integration with accounting software, customer relationship management (CRM) systems, and payment gateways, providing companies with a unified view of their finances and customer interactions.
Cost savings: Billing services can save businesses money by reducing the need for manual intervention and improving efficiency. They can also reduce the likelihood of costly mistakes such as underbilling and missed payments.
Cons of billing services
Initial setup costs: While the ongoing costs of billing services are often low, the initial setup can be expensive, especially if it includes custom integrations or solutions. Some businesses might find this to be an insurmountable barrier to adoption.
Complexity for small businesses: For small businesses or freelancers with relatively simple billing processes, the features billing services offer might feel overly complex or exceed their needs. The learning curve for a new system also requires time and effort that might be better spent elsewhere.
Dependence on technology: Companies rely on automated billing systems to work correctly. System outages, software bugs, or technical failures can disrupt billing, leading to missed invoices or delayed payments.
Security concerns: Although billing services are designed to be secure, storing sensitive customer data on third-party platforms always carries some risk. Data breaches, hacking, or mismanaging sensitive information can damage a company’s reputation and create legal issues.
Customisation limitations: While billing services can be customizable, there are still limitations on how much they can be customised to a business’s needs. For example, certain industries might require very specific invoicing formats that a billing system for more general use can’t accommodate.
Resistance from customers: Some clients might need to be educated about the automated billing process, especially if it involves digital payments or unfamiliar payment gateways. This could cause issues with older or less tech-savvy customers and require time to educate them.
Ongoing maintenance and updates: Billing services require periodic updates and businesses need to monitor these changes to avoid potential glitches or downtime.
How much do billing services cost?
The cost of billing services can vary widely depending on several factors, including the type of service and the business size. Here’s a breakdown of the typical pricing models and ranges for billing services.
Subscription-based pricing (SaaS billing software)
Many businesses choose subscription-based billing services that operate on a SaaS model. These services typically offer tiered pricing, in which the cost increases as the number of features, users, or transactions increases.
Basic plans: Entry-level plans for small businesses or start-ups can range from £10–£50 per month. These plans often include core functions such as invoicing, recurring billing, and basic reporting capabilities.
Mid-tier plans: These plans are for growing businesses that need more advanced features, such as more complex integrations and customer support. The cost of these billing services is usually £50–£200 per month.
Enterprise plans: For large businesses or those with complex billing structures (e.g., custom invoices, advanced tax handling, and automated follow-ups), prices typically range from £200–£1,000 per month, with custom pricing often available based on the business’s needs.
Transaction-based pricing
Some billing services charge based on the number of transactions or invoices processed. This pricing model is common for services that work with payment gateways and handle specialised invoicing.
Transaction fees: These depend on the payment method but generally range from 1%–3% per transaction. Some services also charge a fixed fee per transaction (e.g., $0.30 per transaction) on top of the percentage fee.
Per invoice: Some platforms charge a fixed fee or for a percentage of each invoice generated, which is often 0.4%–0.6% per invoice.
Custom solutions
If a business needs a custom billing solution (e.g., advanced features, unique tax handling, integration with other enterprise systems), the costs can be significantly higher. Custom solutions often come with setup fees, monthly maintenance charges, and ongoing support costs.
Initial setup fees: Depending on the service, these can range from £1,000 to over £10,000.
Ongoing costs: Maintenance, support, and updates for custom systems can cost between £500 and over £5,000 per month, depending on the provider and level of support required.
Free plans
Some billing services offer free plans, which usually have limited features or cap the number of invoices, transactions, or users. These plans might be suitable for freelancers or very small enterprises.
Additional costs to consider
Integration costs: If the billing system needs to integrate with other software (such as accounting software, CRM systems, and e-commerce platforms), there might be additional integration fees that vary depending on the complexity of the integration.
Add-ons or upgrades: Some billing services charge extra for premium features, such as advanced reporting, tax compliance, custom branding, and priority customer support.
How do billing services handle overdue payments?
Billing services address overdue payments by sending automated reminders, assessing late fees, and sometimes through collections. The exact approach varies, but here are some common methods these services use to manage overdue payments.
Automated payment reminders
Most billing services use automated email or text message (SMS) reminders to notify customers when payments are overdue. These reminders are often sent in stages, with increasing urgency based on the payment’s lateness, but can be customised to suit the company. Here’s a typical cadence:
First reminder: The service sends a friendly reminder a few days before or on the due date to inform the customer that payment is due.
Second reminder: If the due date passes with no payment, the service typically sends a second reminder within a few days or a week after the due date. This reminder might include a note about the overdue payment and urge the customer to pay as soon as possible.
Final reminder: If the invoice remains unpaid after a longer period (e.g., after 30 days), the service might send a final notice. This reminder is often more direct and could indicate that the business will take further action, such as sending the bill to collections, if it doesn’t receive the payment.
Late fees and interest
To incentivise timely payments, many companies charge late fees or interest. According to predefined terms, billing services can automatically apply these fees when an invoice is overdue. These can include the following:
Flat late fee: Once the payment is overdue by a certain number of days, a fixed amount, such as £25 or £50, is added to the outstanding balance.
Interest charges: Some services allow businesses to set recurring interest charges (e.g., 1.5% per month) on overdue invoices. These charges are often a percentage of the outstanding amount and accumulate until the debt is settled.
Account suspension or service interruption
Overdue payments might lead the business to suspend a customer’s account or interrupt services, especially if it provides subscription-based or ongoing services (e.g., SaaS providers, utilities, gyms). Billing services can automatically suspend accounts or stop service until payment is made.
For instance, a subscription-based service might automatically suspend a user’s account after several failed payment attempts, preventing the customer from using the product until the outstanding balance is cleared.
Collections
If automated reminders and late fees don’t recover payment, some billing services help initiate the collection process. This can involve the following:
Turning to collection agencies: In more severe cases, billing services might offer integration with collection agencies, allowing businesses to easily escalate overdue accounts to a third-party collector. This is usually reserved for significantly overdue debts (e.g., over 90 days).
Legal action or payment plans: Some billing platforms provide tools to implement payment plans so customers can pay off debts in instalments. Alternatively, businesses might use automated processes to send legal notices or initiate more formal debt recovery steps in the case of large overdue payments.
Flexible payment options
Many billing services offer features that can help customers settle overdue payments. These might include the following:
Partial payments: These allow customers to pay a portion of the outstanding balance while agreeing to pay the rest later. Depending on the platform, they can pay manually or automatically.
Payment plans: Businesses can establish flexible payment plans that divide the overdue balance into smaller, more manageable payments to be paid over time. The billing service can track these payments and send reminders.
Multiple payment methods: Accommodating various payment methods – such as credit cards, Automated Clearing House (ACH) transfers, and digital wallets – makes it easier for customers to pay overdue bills.
Detailed reporting and dashboards
Billing services often provide real-time dashboards and reporting features that track overdue payments and customer accounts. These allow companies to do the following:
Monitor payment status: See which invoices are overdue, how many days they are past due, and the total outstanding balance across all customers – all at a quick glance.
Customer segmentation: Identify customers who frequently pay late and assess the impact of overdue payments on cash flow.
Track disputes or payment issues: In some cases, customers might dispute an invoice or payment. Billing services can track these issues independent of standard overdue payments.
Customer communication and support
Billing services often provide integrated communication tools that enable businesses to interact directly with customers about overdue payments. These tools can include the following:
Customer support for disputes: If a customer disputes an invoice or cites an issue with the product or service delivered, the billing service might provide mechanisms to resolve those disputes without resorting to collections.
Negotiation tools: In some cases, businesses can work directly with customers through automated communications, by negotiating payment terms, or even by offering discounts to encourage payment.
What factors should you consider when choosing a billing service?
When you choose a billing service for your business, first consider the complexity of your billing requirements. A basic billing system might be sufficient if your company handles simple, one-time transactions. However, if you handle recurring payments, multiple pricing tiers, or complex invoices, you’ll need a more comprehensive solution.
You should also assess how easily a billing service can integrate with your existing accounting software, CRM system, or e-commerce platform. Choose a service with a user-friendly interface that will allow your team to manage payments, generate invoices, and track balances without extensive training.
Security and compliance are also key factors. To protect sensitive customer data, the billing service should have strong security protocols such as encryption and secure payment processing. Additionally, ensure the service complies with relevant data protection standards and regulations such as the General Data Protection Regulation (GDPR) and Payment Card Industry Data Security Standard (PCI DSS).
Finally, consider how easily your billing service can scale with your business. As your billing needs become more complex, you’ll probably need access to additional features and increased processing capability without having to switch providers.
Learn more about Stripe Billing.
The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accuracy, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent lawyer or accountant licensed to practise in your jurisdiction for advice on your particular situation.