Subscription-based businesses are booming, and this is a trend we can expect to continue: indeed, the global subscription market is forecasted to swell to a whopping $7bn by 2025.
With this in mind, it’s little wonder why so many fresh-faced businesses are diving head-first into the sector… If there’s money to be made, why not? For anyone experienced in the world of ecommerce, subscriptions may even seem like the next logical business move.
But let us provide you with a word of warning — managing a subscription-based business is a whole different ball game. Why? Because retaining a customer is much harder than attracting a new one. No matter what kind of subscription service you’re managing, whether it’s SaaS or physical products delivered through the mail, ensuring everything runs smoothly is paramount.
With this in mind, let’s discuss one of the key components in any subscription business — recurring payments. If you’re taking repeated payments on a regular basis, you’re going to need a way of invoicing these bills. Below, we’ll delve into why recurring invoices are crucial for any subscription service, and how you can create your own recurring invoicing system. A simple way of creating recurring invoices is also using invoicing software. The invoicing software can be an efficient and convenient way to manage your business’s invoicing process, allowing you to create and send invoices electronically, track payments, and generate financial reports. It can save you time and reduce errors compared to manual invoicing.
What is a recurring invoice?
Let’s be clear — a recurring invoice is similar to any other invoice, other than it’s sent out at set intervals (typically on a monthly or yearly basis). Recurring invoices are most commonly used by businesses offering SaaS or subscription-based services, given that they help to ensure regular and predictable payments.
To streamline the process, these businesses often implement automated systems for generating and sending recurring invoices to their customers. These systems save time, reduce the risk of manual errors, and provide customers with a clear and convenient way to manage their payments. Put simply, recurring invoices are an essential component of the subscription-based revenue model.
Can’t I just build my own invoicing system?
It’s a fair question, but unfortunately, this isn’t an ideal solution for a few reasons. In-house invoice system development may appear to be a budget-friendly option; however, unless you have a team of highly competent software engineers equipped to create and sustain the system, a pre-made solution may be preferable.
The first issue with building your own invoicing system? Managing your subscriber base. This might be easy enough in the beginning, but scaling up, you’ll need to implement sufficient flexibility: accounting for plan upgrades, downgrades, consolidation, and so on.
Keeping tabs on all of these variables (and keeping your subscribers satisfied amidst all the logistics) could easily lead to catastrophe. It’s also a time-intensive process — wouldn’t all those hours be better spent pursuing business expansion, instead of endlessly maintenance? This is without mentioning all of the rules and regulations you’ll need to comply with, too.
The benefits of using a recurring invoice invoicing system
To summarize, let’s take a look at why using a pre-built invoicing system is a sensible choice. They help you to:
- Build customer engagement
- Optimize the checkout process
- Reduce time spent collecting payments
- Implement changes quickly
- Empower your customers to make account-level changes independently, easing the burden on your support agents
- Improve revenue recovery by mitigating the impact of failed payments
- Increase customer retention
So, how do you set up your recurring invoicing software?
How to set up recurring invoices
Google the phrase “recurring invoice software” and you’ll find no shortage of providers offering their services. Unfortunately, this does make it rather difficult to provide a one-size-fits-all guide.
For this article, we’ll be using Chargebee, but no matter which system you choose, the steps below should broadly be the same. We won’t be covering the installation process either, as this too can vary depending on how your store is currently configured. In the case of Chargebee, you can find a full initial setup guide here.
First off, let’s take a look at the instances in which Chargebee generates an invoice (these will vary from one provider to the next):
- Whenever a new subscription is created, removed or updated
- Whenever a new charge is added
- Whenever an add-on (such as additional charges or discounts) is included in a subscription
- Whenever an invoice is made for unbilled charges
- Whenever an invoice is regenerated
Whichever software you choose, try to pick one that automates the entire process of invoicing, starting from a new subscription sign-up, right through to all the payments made between you and the customer. Chargebee can also send email notifications as well — handy for informing buyers of the transaction status.
Once your invoices have been generated, you can access them by logging into your Chargebee site. Any invoicing software you choose should have a dashboard that serves as a central hub, from which you should be able to get an overview of all the invoices you’ve generated.
From the dashboard, you can customize the look and feel of your invoice, filter through your invoices (handy if you’re dealing with thousands of customers), carry out bulk commands (delete, mark as void, collect payments, etc.), email the customers, or export the invoices as a CSV or PDF.
Note that in Chargebee’s dashboard, the invoice status is clearly marked. The various invoices statuses include:
- Payment due
- Not paid
In Chargebee’s case, customers are billed on the same day their subscription becomes active. So, for example: if a customer signs up for your service on June 8th without any free trial period, billing will start from June 8th. If the customer has signed up for a monthly subscription, the next billing date will occur on July 8th, and every month thereafter — simple! It’s also important to note that invoices will follow the timezone of your website.
If your business is already kitted out with accounting software (such as Xero or Quickbooks) Chargebee can help by automating the process, eliminating the need to update invoices one by one manually. With features such as proration, subscription upgrades/downgrades and non-recurring charges, invoicing can be complex, but with Chargebee’s integration, invoicing and payment data are synced automatically, creating a single source of truth for accounting with reduced manual effort.
Top tips for recurring invoicing
- Add some flair: Don’t be afraid to customize your invoices — it’s a great opportunity to add some extra branding! Most invoicing software will include the option to fully tailor your invoices, from the color scheme to the payment information and address format.
- Consolidate invoicing: If you regularly deal with customers who have multiple subscriptions and incur multiple charges, consider consolidating their invoices.
- Invoice in advance: Consider allowing your customers the option of receiving an invoice in advance. This can help them to manage their finances and ensure you receive payment promptly.
- Send payment reminders: Reduce the number of unpaid invoices by reminding customers a set number of days before the invoice is due. Systems such as Chargebee automatically retry payments if they fail and adjust the payment retry frequency based on a data-driven logic to maximize success.
- Prioritize transparency: Subscriptions aren’t static, and it’s your job to deal with customers upgrading, downgrading, or canceling their plans. In any of these scenarios, your billing needs to reflect these changes, and that’s where transparency becomes crucial. Make sure all the details on your invoices are broken down and explained clearly.
Creating and managing recurring invoices can be a challenge for expanding subscription businesses, but an automated billing system simplifies the process by generating accurate, transparent, and customisable invoices. For more tips on leveling up your business, read this guide to the best software tools to boost your ecommerce performance.