Recurring revenue business models, like software as a service or subscriptions, have many advantages over the more common transactional sales model. They include more consistent cash flow, longer-term customer relationships and higher company valuations. Along with the positives, however, come unique challenges. These models require different marketing strategies, adjusted sales plans and a whole new set of KPIs. Recurring revenue also impacts customer billing, causing headaches for accounts receivable staff.
Frequency, complexity and inefficiency
Unlike the traditional model where a sale involves a single transaction and is either billed all at once or incrementally as specific deliverables are completed, in a recurring revenue business a single sale represents multiple transactions billed at regularly recurring intervals over an indeterminate timeframe. Customers are billed more frequently in this model, often monthly. This increases total billing volume, meaning more work for accounts receivable (AR)(opens in new tab).
The pricing strategy employed by a recurring revenue business also complicates the billing process and revenue recognition(opens in new tab). Plans that feature variable rate structures, for instance, such as volume-based, tiered and/or customer specific pricing, require extra effort to ensure customers are charged the correct rate. Billing customers for time or usage is particularly challenging as both the quantity consumed and the rates charged can vary from one month to the next. Promotional discounts and trial offers introduce even more complexity, as billing needs to reflect start and end dates.
Inefficient manual processes may be the biggest obstacle to managing recurring billing effectively. Reviewing hundreds of customer accounts every month then calculating and entering the correct charges is time consuming and labor intensive. As a company adds more customers, they’re forced to hire more staff to handle the additional billing volume. This additional staffing increases operating costs and, in a competitive labor market, isn’t sustainable.
And because basic accounting systems aren’t designed to keep track of promotional periods, apply different rating models or perform other tasks unique to recurring billing, much of the work must be done with spreadsheets. Keeping data in spreadsheets, rather than the accounting system, makes it impossible for business leaders to get an accurate, real-time view of financial performance.
The best way to overcome these challenges is by automating recurring billing. Automation simplifies the billing process, saving time and helping ensure accuracy by eliminating manual tracking and rate calculations. An automated billing solution also keeps customer data, pricing and other critical information in one place, improving data quality and financial visibility.
Automate Recurring Billing with NetSuite
NetSuite makes billing operations simpler and more efficient, providing real-time visibility into billing and financial activity across areas like monthly recurring revenue, total contract value and customer churn(opens in new tab). From consolidated invoicing, to automated rating processes, to support for multiple pricing models, SuiteBilling(opens in new tab) provides transparency around all billing activities. Flexible options give businesses the choice of billing subscriptions as either one-time charges or recurring fees, either in advance or in arrears(opens in new tab). With multiple rating models, companies can create subscriptions that capture setup fees, license counts and variable consumption all in one step. The combination of easy subscription set up and maintenance, and flexible rating models significantly increases billing process efficiency.
NetSuite customers already understand the productivity benefits of automating standard accounting tasks. If the finance team is using spreadsheets or another application to manage recurring billing, however, there is still plenty of opportunity to increase efficiency. The addition of SuiteBilling with NetSuite saves billing teams time by automating additional processes and improving visibility by ensuring critical financial data is managed in a single place.
Want to learn more about how to automate recurring billing with NetSuite? Join the upcoming webinar Simplify Subscription Billing and Management(opens in new tab).