Automated billing for ecommerce 101: A guide for businesses

Billing
Billing

Stripe Billing lets you bill and manage customers however you want—from simple recurring billing to usage-based billing and sales-negotiated contracts.

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  1. Introduction
  2. How do automated billing systems work?
  3. What is the role of automated billing in ecommerce?
  4. How to set up automated billing
    1. Product and pricing setup
    2. Payment methods
    3. Customer checkout
    4. Automatic billing
    5. Customer communication
    6. Tax compliance
  5. Advantages of implementing automated billing in ecommerce
  6. How to manage customer subscriptions and recurring payments
    1. Tech tools
    2. Customer outreach strategies
    3. Internal processes
    4. Product features
  7. Challenges and solutions with automated billing in ecommerce
    1. Failed payments and involuntary churn
    2. Subscription fatigue and voluntary churn
    3. Integration
    4. Pricing and plan management
    5. Data security and compliance
    6. Customer disputes and chargebacks
  8. Automated billing best practices for ecommerce businesses

Automated billing simplifies transactions and subscription management for businesses. It allows businesses to generate automated invoices and payment reminders, and offer their customers different payment processing options. This contributes to faster and more accurate processes that reduce administrative costs and human error. The global subscription ecommerce market is expected to increase from $199 billion USD in 2023 to nearly $331 billion USD in 2024.

This guide will cover automated billing’s role in ecommerce, the advantages of implementing automated billing, and best practices for ecommerce businesses.

What’s in this article?

  • How do automated billing systems work?
  • What is the role of automated billing in ecommerce?
  • How to set up automated billing
  • Advantages of implementing automated billing in ecommerce
  • How to manage customer subscriptions and recurring payments
  • Challenges and solutions with automated billing in ecommerce
  • Automated billing best practices for ecommerce businesses

How do automated billing systems work?

Automated billing systems combine data from a variety of sources to automatically generate invoices, send them to the appropriate recipients, and process and reconcile customer payments. Here’s how the process works.

  • Data integration: Automated billing systems integrate with existing business software—such as customer relationship management (CRM) and enterprise resource planning (ERP) systems—and pull relevant data such as customer information, pricing, products or services purchased, and billing terms.

  • Invoice generation: Based on the integrated data and predefined rules, the system automatically generates invoices. Businesses can customize these invoices—which include specific details including taxes, discounts, and due dates—to match the business’s branding and billing processes. The system can calculate taxes automatically based on customer location and applicable tax rates.

  • Payment processing: Automated billing systems integrate with different payment gateways, enabling customers to pay online using credit and debit cards, ACH transfers, or other methods. Many systems come with multicurrency features that allow businesses to bill customers in their preferred currency. The system processes payments securely and updates the relevant accounts.

  • Dunning management: If customers do not pay their bills on time, the system automatically sends out reminders and follow-up emails. This helps reduce late payments and improves cash flow for the business.

  • Reporting and analytics: Automated billing systems provide detailed reports and analytics on invoicing, payments, and customer behavior. Business owners can use this data to identify trends, improve billing processes, and make informed business decisions.

  • Subscription management: For businesses with recurring billing models, automated billing systems can manage subscriptions—handling upgrades, downgrades, cancellations, and automatic renewals.

  • Security: Automated billing systems protect sensitive financial data. They typically use encryption and fraud detection features, and adhere to industry standards such as the Payment Card Industry Data Security Standard (PCI DSS).

What is the role of automated billing in ecommerce?

Automated billing helps ecommerce businesses simplify financial transactions, reduce manual errors, and improve the customer experience—among other benefits. Here’s more detail on how automated billing helps businesses.

  • Easier transactions: Automated billing facilitates a quick, easy checkout process for customers by automatically calculating totals and providing convenient payment options.
  • Subscription management features: Many ecommerce platforms have subscription-based products or services. Automated billing systems can help manage these subscriptions by generating and sending invoices, processing payments, and handling subscription renewals or cancellations without manual oversight.
  • Scalability: As ecommerce businesses grow, the volume of transactions can increase exponentially. Automated billing systems can scale to handle increased transaction volumes without a corresponding increase in errors or staffing costs.
  • Global sales support: Ecommerce often involves cross-border sales, which come with challenges such as multiple currencies, tax laws, and compliance regulations. Automated billing systems can handle these complexities by adjusting prices according to exchange rates, applying the correct taxes, and ensuring compliance with international standards.
  • Real-time data integration: Businesses can integrate automated billing systems with other ecommerce systems such as inventory management and CRM, which allows for real-time updates across platforms. For example, if a business runs out of a specific product, the billing system can immediately reflect this to prevent additional orders, thereby avoiding customer dissatisfaction and potential disputes.
  • Personalized marketing and discounts: Automated billing systems can track customer purchasing behaviors and preferences, and businesses can use this data to customize marketing efforts. For example, businesses can apply discounts, coupons, and special offers to customer accounts based on their shopping history—boosting customer engagement and encouraging repeat business.
  • Better customer service: Automated systems help customer service teams resolve questions and issues more efficiently by providing them with easy access to transaction histories. Customers can also access their billing information through user-friendly interfaces, which reduces the need to contact customer service.

How to set up automated billing

The key to the benefits of automated billing is choosing the right platform to manage it. Ecommerce businesses can use Stripe Billing to implement automatic billing for subscriptions and recurring payments. Below is an overview of the process; you can learn more in our Billing docs.

Product and pricing setup

In your Stripe Dashboard, navigate to the “Products” section and create a new subscription product. Define the product name, description, and any relevant images. Within the product, create one or more prices. Each price should include the following features:

  • Nickname: An internal identifier for your reference
  • Interval: Billing frequency (monthly, yearly, weekly, etc.)
  • Amount: Price per billing cycle
  • Currency: The currency in which you’ll charge customers
  • Billing cycle anchor: The day of the month or week on which the first payment will occur
  • Trial period: An optional free trial period for new customers (for a set number of days)

Payment methods

Enable the payment methods you want to accept in your Dashboard, such as credit and debit cards, digital wallets, and ACH transfers.

Customer checkout

Implement Stripe’s client-side software development kit (SDK) in JavaScript or a server-side library in your ecommerce platform. Stripe integrates with popular platforms such as Shopify, WooCommerce, and Adobe Commerce. And if you have a custom platform, you can use Stripe’s application programming interfaces (APIs) to build a customized integration.
Guide customers through a checkout process where they select the desired subscription plan and enter their payment information (you can do this using Stripe Checkout or Stripe Elements for a more customized experience). Stripe tokenizes the customer’s payment details, protecting sensitive information.

Automatic billing

Based on the pricing plan’s interval and billing cycle anchor, Stripe automatically generates invoices and attempts to charge the customer’s payment method on the specified dates. Stripe Billing handles the payment processing flow, including retries for failed payments, and sends webhook events to your backend system to notify you of completed or failed payments, subscription updates, and other relevant actions.

Customer communication

When implementing an automated billing system, make sure to communicate with customers about billing terms, transaction completions, renewals, cancellations, and failed payments. You can set up custom automations for these communications through the “Automations” tab in Stripe Billing.

  • Billing terms: Clearly state the billing terms (price, interval, renewal date) before the customer subscribes.
  • Receipts: Send email receipts after each payment.
  • Renewal reminders: Notify customers before their subscriptions renew.
  • Cancellation: Provide a straightforward way for customers to cancel their subscriptions.
  • Failed payments: Inform customers of failed payments and allow them to update their payment information.

Tax compliance

Stripe Tax can automatically calculate and apply sales tax based on customer location, and generate tax reports for your records.

Advantages of implementing automated billing in ecommerce

Beyond the basic key functions of generating invoices and processing payments, automated billing systems also create several benefits and opportunities for ecommerce businesses. Here’s how implementing an automated billing system can help your ecommerce business succeed.

  • Targeted upselling and cross-selling opportunities: Automated billing systems can track customer purchase history and preferences, so businesses can provide customers with highly targeted upselling and cross-selling offers at the time of billing. This strategy is more effective than generic email campaigns and can substantially increase average order value.
  • Reduced operational overhead: For businesses with a large number of transactions, manual billing can become more time-consuming and error-prone. Automated billing can scale with your business, and it can allow you to handle a high volume of transactions without increasing head count.
  • Easier compliance with tax laws: Businesses can configure automated billing systems to handle tax calculations based on customer location and product type, ensuring accurate tax collection and reporting. This reduces the risk of costly errors and penalties due to noncompliance.
  • Better fraud prevention and chargeback mitigation: Many automated billing platforms integrate with fraud detection software and can automatically flag suspicious transactions for review. They can also help simplify the chargeback dispute process, saving you time and resources.
  • Better customer relationship management: By integrating your automated billing system with your CRM, you can gain a holistic view of each customer’s purchase history, billing information, and support interactions. This facilitates more personalized customer service and can lead to increased customer lifetime value.
  • More accurate forecasting and financial planning: Automated billing provides accurate, real-time data on recurring revenue, churn rates, and customer lifetime value. This allows for more accurate financial forecasting and improves data-driven decisions about marketing spend, inventory management, and other key business areas.
  • Ability to test pricing optimization strategies: Automated billing makes it much easier to experiment with different pricing models and subscription tiers. Traditional ecommerce models often rely on fixed pricing, but automated billing systems allow you to explore more flexible pricing models such as usage-based billing (paying for what you use) or hybrid models (combining fixed and usage-based elements). You can run A/B tests to see which options resonate best with your customers and optimize your pricing strategy for maximum revenue.
  • Reduced involuntary churn: Automated billing systems can send personalized emails or notifications to customers about upcoming renewals, payment failures, or other account-related issues. This proactive communication can help prevent involuntary churn due to expired cards or billing issues.
  • Improved brand image: A user-friendly automated billing process conveys professionalism and reliability to your customers. It shows that you value their time, which can help build brand loyalty and trust.

How to manage customer subscriptions and recurring payments

Here’s a closer look at some strategies, tools, and features that can help you manage customer subscriptions and recurring payments.

Tech tools

  • Centralized dashboard: Use a subscription management platform (such as Stripe) that provides a centralized dashboard to view and manage all subscriptions in one place.
  • Customer portal: Provide a self-service portal where customers can update their payment information, change subscription plans, view billing history, and cancel subscriptions if needed.
  • Automation: Automate key tasks such as plan upgrades or downgrades, proration (adjusting charges for midcycle changes), and failed payment retries.
  • Transactional emails: Send automated emails for completed payments, upcoming renewals, failed payments, and other important events.
  • Account updater: Use a card account updater to automatically update expired or replaced card information, thereby reducing involuntary churn.

Customer outreach strategies

  • Renewal reminders: Reach out to customers a few days before their subscription renews, giving them a chance to update payment information or cancel if they choose to.
  • Win-back campaigns: If a customer cancels, send targeted win-back emails with incentives to resubscribe.
  • Retry logic: Implement a dunning process that automatically retries failed payments multiple times before marking a subscription as delinquent.
  • Email notifications: Send personalized emails to customers after failed payments, encouraging them to update their payment information.
  • Dedicated support channels: Provide dedicated support channels (e.g., email, live chat) specifically for billing and subscription-related inquiries.
  • Proactive outreach: If a customer has trouble renewing their subscription, reach out proactively to assist.
  • Customer feedback: Gather feedback from customers about their billing experience and use it to improve your processes.

Internal processes

  • Account suspension: Temporarily suspend access to the product or service for delinquent accounts.
  • Key metrics: Track subscription metrics such as monthly recurring revenue (MRR), churn rate, customer lifetime value (LTV), and average revenue per user (ARPU).
  • Cohort analysis: Analyze customer cohorts (groups of customers who subscribed at the same time) to identify trends in churn and retention.

Product features

  • Pause function: Allow customers to temporarily pause their subscriptions instead of canceling, which can lead to higher reactivation rates.
  • Loyalty programs: Reward loyal subscribers with discounts, exclusive content, or early access to new features.
  • Referral programs: Encourage customers to refer friends and family by offering incentives. This can be a cost-effective way to acquire new subscribers.

Challenges and solutions with automated billing in ecommerce

Here are some common challenges that businesses encounter with automated billing in ecommerce—and ideas for how to combat them.

Failed payments and involuntary churn

A substantial portion of churn can be attributed to failed payments caused by expired or invalid card details. This can lead to revenue loss and dissatisfied customers.

Solutions

  • Account updater: Implement a card account updater to automatically update outdated card information. This tool is integrated into Stripe’s subscription management services.
  • Dunning management: Set up a dunning process with multiple retries and customizable email reminders that will prompt customers to update payment details.
  • Smart retry logic: Use intelligent retry schedules that adapt to customer behavior and payment history for better success rates.

Subscription fatigue and voluntary churn

Customers might feel overwhelmed by too many subscriptions or lose interest in a product, leading to voluntary cancellations.

Solutions

  • Value-driven communication: Regularly communicate the value proposition of your product or service to keep customers engaged.
  • Usage tracking: Monitor customer usage patterns and proactively contact those who are underutilizing the product to offer assistance or alternative plans.
  • Flexible plans: Offer a variety of subscription options, including pause/resume functionality, to support different customer needs.

Integration

Integrating an automated billing system with existing ecommerce platforms or other business software can be a technological challenge.

Solutions

  • Provider choice: Select a billing provider that integrates with your ecommerce platform or other systems such as CRM and accounting software.
  • Developer resources: Allocate dedicated development resources or consider hiring a specialized consultant to handle more difficult integrations.

Pricing and plan management

Managing multiple pricing plans, discounts, and promotions can become more difficult as your business grows.

Solutions

  • Pricing features: Choose a billing platform with pricing management features that allow you to easily create, update, and manage complex pricing structures.
  • Pricing communication: Communicate pricing details clearly to avoid confusion and potential disputes.

Data security and compliance

Handling sensitive customer payment information requires strong security measures and compliance with regulations such as PCI DSS.

Solutions

  • PCI-compliant provider: Choose a billing provider that is PCI DSS compliant and adheres to the highest security standards.
  • Data encryption: Encrypt all customer data in transit and at rest.
  • Security audits: Conduct regular security audits to identify and address any vulnerabilities in your billing system.

Customer disputes and chargebacks

Customers might dispute charges or initiate chargebacks, which can be time-consuming and costly to resolve.

Solutions

  • Billing descriptors: Use clear and recognizable billing descriptors on customer statements to avoid confusion.
  • Customer communication: Communicate proactively with customers about any changes to their subscription or billing.
  • Dispute management: Implement a well-defined process for handling disputes and chargebacks promptly and effectively.

Automated billing best practices for ecommerce businesses

Use the following best practices to maximize the benefits of your automated billing system:

  • Behavioral dunning: Instead of sending generic dunning emails, use behavioral data to customize your communication. Analyze past payment behavior, purchase history, and engagement to send personalized messages that resonate with individual customers and increase the likelihood of recovery.
  • Predictive churn modeling: Use machine learning algorithms to analyze customer behavior and predict churn risk, so you can proactively intervene with personalized promotions or incentives for at-risk customers before they cancel.
  • Subscription optimization: Regularly review and optimize your subscription offerings based on customer feedback and data analysis. Experiment with different pricing models, bundling options, and feature sets to maximize customer lifetime value and reduce churn.
  • Dynamic pricing: Implement dynamic pricing strategies that adjust subscription costs based on demand, usage patterns, or other factors. This can help optimize revenue and provide customers with more personalized pricing options.
  • Usage-based billing and metered pricing: For certain products or services, consider usage-based billing or metered pricing models. This allows you to charge customers based on their usage, which can be particularly valuable for products with varying usage levels.
  • Account expansion and cross-selling: Use automated billing data to identify opportunities for account expansion or cross-selling. For example, if a customer consistently exceeds their usage limits, suggest a higher-tier plan with more resources.
  • Revenue recognition automation: Integrate your automated billing system with your accounting software to automate revenue recognition. This ensures accurate financial reporting and compliance.
  • Subscription analytics: Use advanced analytics to gain deeper insights into subscription performance. Track metrics such as MRR, churn rate, customer lifetime value, and renewal rates at a granular level. This can help to identify trends, optimize your strategies, and make data-driven decisions.
  • Integration with customer success platforms: Integrate your billing system with customer success platforms to gain a holistic view of customer health and address potential issues before they escalate into cancellations.
  • Subscription lifecycle management: Develop a comprehensive subscription lifecycle management strategy that covers the entire customer journey from acquisition to renewal. This includes onboarding, engagement, retention, and win-back strategies—all customized to the specific needs of subscription customers.

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 accurateness, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular situation.

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