Many of the traditional subscription billing solutions out in the market today were built for a time that has long passed us — when SaaS subscriptions were more simple, with predictable annual or monthly contracts, static bundles, and little variation. Today's world of SaaS subscriptions, however, is much more creative and dynamic, with ramped revenue, usage-based pricing, and an environment of constant change, from mid-term amendments and upsells to variable discounting.
If you're hitting a wall with your current billing system, it may be that your legacy billing solution just isn't meeting your business's needs any longer. Here are the top 11 reasons why these traditional billing systems just don't make the cut for the modern SaaS business.
1. Lack of modern pricing and packaging flexibility
As businesses configure and experiment with new pricing and product offerings, their billing solution must connect to and effectively process these changes upstream without breaking what’s working. The idea of launching and reconfiguring new pricing and deal structures can’t come to fruition unless your billing system can actually support them.
Unfortunately, most traditional billing systems simply weren’t designed to support all of the packaging and pricing variations that modern SaaS businesses use today. As a result, beautifully constructed ramp quotes are often lost by billing systems because they can’t intake sophisticated deal structures. The responsibility then falls to finance teams who either have to manually bill complex deals or manually reconstruct them in the billing system as best as they can. All this adds up to more hours of work spent by your finance team.
2. Lack of robust subscription management
For SaaS businesses, subscription management is a core part of their customer lifecycle. New customers should be automatically onboarded as soon as a deal is signed, and renewals need to be executed on a regular basis. A billing system with subscription management provides one source of truth for customer entitlements, automates the renewal process, generates more revenue, and creates a better customer experience. Without subscription management, customer success and finance teams will have to run multiple siloed manual reports to understand the health of their customer contract, which is a time-consuming and error-prone process.
As Chan noted, “the billing solution we were previously using didn’t have subscription management built in, so we had to manage everything on a spreadsheet, which was not ideal to be a single source of truth. Having a single source of truth is the most important and critical thing for us, so we quickly rectified that by moving to a billing solution with subscription management.”
3. Siloed billing system
Traditionally, billing has been a siloed process that was solely for the finance department. But in today’s world, billing spans different departments, such as sales, reporting and analytics, and revenue recognition. Each of these verticals need real-time access to subscription data to perform their roles of generating quotes, managing payments, creating financial reports, and recognizing revenue. The key to a successful billing system is that it’s easy to integrate with your core systems. According to Forrester Research, “merchants struggle to integrate new billing solutions into their varied tech stack: It’s often slow and expensive and eats into the time to value of their new solutions.”
Further, disconnected billing technology requires significant manual intervention to process data and transfer information over to other systems. Manual data transfer is a difficult task to perform and can lead to siloed business insights and customer data, misalignment in teams, and delays and inaccuracies in reporting, invoicing, and more. Your finance team will waste significant time and effort managing invoices and payments across multiple systems. And all these integration issues will add friction to the customer experience.
4. Slow, error-prone APIs
Leveraging application programming interfaces (APIs) makes it easier to connect with other third party tools to enhance customization and yield best-of-breed functionality. With an outdated billing system, however, it’s incredibly hard and time-consuming to add new functionality or update existing ones. Connecting a legacy solution to third-party tools and services requires more manual effort due to incompatibility with modern systems. Over time, performance becomes slower and more failures occur. Legacy systems may also be more vulnerable to security issues and data leaks because they’re using older security protocols and standards.
“The hardest thing about outdated APIs is that it drags the time frame of the implementation process,” Chan explained. “When we spend money on something, I want it to be up and running quickly. If it takes 6 months or longer to implement, that’s time lost. When evaluating a billing solution, I want it to be easy to implement and use so I can quickly access the reports and dashboards to get my job done.”
5. Very long implementation time
Implementing a billing solution is an overwhelming, confusing, and time-intensive process. As mentioned earlier, your billing system needs to seamlessly integrate with other core systems. Even if your billing system can support complex deals and prices, it will require custom integrations and months of development work to synchronize with your CPQ, tax engine, payment processor, reporting tool, and revenue recognition system.
Compounding the issues that go along with a lengthy implementation process, your business will have to migrate data across systems, maintain data integrity, and train and uplevel staff, among other things. All of this takes time and ultimately drives up the cost of the project.
Additionally, when businesses start the billing implementation process, inadequate planning and unrealistic expectations can lead to further delays. If your billing system isn’t flexible, you likely already understand how much work and resources are required to get up and running. In fact, it can take months or even years for a legacy billing system to be installed, configured, customized, tested, and trained on, which unfortunately takes time away from running your core business.
6. Invoices are manual and error-prone
In the SaaS world, there are a multitude of complexities in modern multi-year deals where the invoice amount varies. For instance, if a customer decides to pay $55 per user per month for Year 1 and $20 per user per month for Year 2, how do you invoice that?
Depending on the billing system, most SaaS companies will create an invoice for every year and end up with two different order forms that have nothing to do with each other. Furthermore, if a subscription is modified multiple times through an amendment order, the order lines related to each amendment show up on the invoice. So if you have two amendments for the two order forms, the customer ends up getting four invoices. Sending multiple invoices can frustrate customers, and it reflects poorly on your business as a whole.
With a manual or legacy billing system, problems with an invoice could reach deep into the subscription lifecycle before someone realizes that the numbers don’t line up or it’s missing information. One wrong letter or number, and the invoice might never reach the customer at all. Incorrect invoicing not only takes time to resolve, but also the cost of errors for your business can be high.
7. Multiple reconciliations
Reconciliation has long been a manual process, requiring hours of cross-referencing financial records to ensure the numbers match and are accurate. Even in today’s business world, finance organizations still rely heavily on manual reconciliation or outdated billing solutions to complete it.
Using one system to generate quotes and another to generate invoices is the root cause of never-ending reconciliation headaches. For example, your quoting system can prorate differently than your billing system. If your customer has six months of service in one year, how much do you charge? Do you charge half because it’s six months of the year? Or do you charge for 182 days out of 365 days? What happens if your quoting system prorates by days and your billing system prorates by months? You get mismatched numbers.
As Vildanova related, “the whole point of having a billing system is to automate and save time so we can all focus on more important things. At the end of the day, you can build all of the connectors you want, but if you cannot rely on them, you’re going to end up with manual controls across your quote-to-cash process. And that will eventually lead to a gazillion reconciliations.”
8. Takes a long time to close books
The month-end close is an arduous process for SaaS controllers, whose goal is to close the books quickly and efficiently. Accounting demands accuracy, yet most financial departments continue to enter payments, invoices, and other data manually or across different billing products. A lack of automation in your accounting workflow not only takes time, but also increases the risk of errors.
As a result, financial controllers have to jump between different billing systems, sort through multiple spreadsheets with various versions and modifications, and track down information across siloed departments to ensure all transactions have been recorded correctly. Additionally, they may need to reconcile more accounts, as any errors that are found must be corrected. This increases the effort required to close the books and ultimately delays the entire process.
“One of the biggest challenges I see in today’s systems is that the quoting tool and billing tool are in two separate places,” explained Nicole Zalvay, Director of Order Management at Lacework. “Having information live in two separate systems can really expose us to incorrect information, and we have to put all of these reconciliation processes in place.”
9. No single source of truth
Having a single source of truth for finance data provides a complete and accurate picture of your business growth as a whole. Establishing a single source of truth becomes challenging if you have various disconnected, unsynchronized systems to contend with. In many cases, these systems are also deployed and managed separately by different departments, instead of being centrally owned by the business’s data and analytics team. When data is only accessible to individual business units, it prevents finance and other departments from accessing relevant information about customers, products, payments, and more.
Your sales team, for example, may format customer data differently than your finance team. Data updates in your quoting system won’t get made in a siloed billing system. And errors made upstream may not be identified or fixed until after the invoice is created. Rigid billing technology with no single source of truth increases the risk of financial oversights, revenue misstatements, duplicate data platforms and processes, and non-compliance with revenue recognition and other accounting standards.
10. Manual and inefficient processes
An outdated billing solution can often lead to time-consuming, resource-intensive processes full of headaches and highly prone to failure. Small to midsize companies may try to brute-force the problem by doing everything manually in Excel spreadsheets.
Other companies do their best with the systems they have by implementing workarounds to handle use cases that their billing solution doesn’t natively support. The trouble with this approach is that it’s just not sustainable. As a billing vendor evolves their product, workarounds can break. Over time, businesses can end up creating workarounds on top of workarounds, until they’ve created a ticking workaround time bomb, just waiting to explode.
This is also a major reason quoting and billing systems take so long to implement and go live. These systems are commonly hacked and patched together to support the dynamic pricing and deal structures that customers need. The problem is bad enough with just a single subpar billing solution. It’s compounded when you have various systems built by different vendors, all lacking in some way. Utilizing disparate systems can lead to endless reconciliations and 30-50 people checking every quote and invoice to figure out why the numbers don’t match.
“A lot of companies maintain all of their billing and deferred revenue on spreadsheets. When you don’t have an automated billing solution, you waste time correcting errors and suffer from it. Manual work is always subject to mistakes, even if you are the smartest person on earth,” noted Segev.
“What if you’re managing all of your billing on spreadsheets and you go on PTO? You need another person to understand all of the formulas and manual processes you’re doing, and that’s not easy. Either you don’t go on vacation or you just plan your vacation around the spreadsheets.”
11. Increase in overall costs
Many growing SaaS businesses choose to update and maintain their legacy billing system, rather than replacing it. Learning how to navigate the complexities of a modern, enterprise-grade billing solution, especially when you’re comfortable with what you’re used to, is a significant investment in money and time and has the potential for major business interruptions. But research shows that companies who hold onto legacy systems for longer than they should are losing more money than they may realize.
Many SaaS companies pay for three different quoting, billing, and revenue recognition systems, which means implementing three different systems and building custom integrations between them. Additionally, if these systems don’t support modern SaaS use cases, you’ll be forced to figure out how to implement workarounds to get what you need from your existing systems, which is neither trivial in time nor in cost.
This blog post is an excerpt from our eBook "The Subscription Billing Buyer's Guide for SaaS." To read more, download the full guide here.