Subscription billing is software that bills customers who pay regularly for a service, and who may upgrade, downgrade, pause or cancel at any time. For each customer, it works out the charge for their plan, sends the charge to be paid, chases payments that fail and tells the accounts how much revenue to record. It is also called recurring billing, and the software is often called a billing engine.
Billing one customer once is easy. Billing 20,000 customers every month is not, because each one is on a different plan, started on a different day and changes plans at different times. The problem first appeared in software. When software began to be rented by the month instead of sold in a box, software companies needed a new kind of billing. Software rented in this way is called SaaS. Now gyms, streaming services, newspapers and appliance rental companies bill in the same way.
Here is a typical case. A company in Mysuru sells accounting software to 20,000 small businesses. It has two plans: Basic at ₹1,000 a month and Pro at ₹2,500 a month. On 16 June, a customer on Basic upgrades to Pro. June has 30 days, and 15 of them remain. So the billing engine charges the customer half of the ₹1,500 difference, ₹750, now. From 1 July, the customer pays ₹2,500 a month. Charging for part of a period in this way is called proration. Another customer pauses for a month while her shop is being repaired, and the engine skips her next bill. GST at 18 per cent is added to every invoice.
To collect the money, the engine sends each charge to a payment gateway, which debits the customer's card or UPI account. In India, the RBI requires an e-mandate for recurring card and UPI payments: the customer approves once, and gets a notice before each debit. Some charges fail, for example when a card has expired. The engine then retries the charge and reminds the customer. This is called dunning.
The engine also tells the accounts what to record. Say a customer pays ₹30,000 for a year of Pro in April. The company has not yet earned ₹30,000 of revenue in April. It earns ₹2,500 each month, as it provides the service. Revenue recognition works this out, and the results go to the ERP and to financial close software.
More and more companies charge by use instead of a fixed monthly fee, for example by the number of messages sent. This is usage-based billing. The page on SaaS pricing models compares the ways of setting a price. Billing engines have grown into what the industry calls monetisation platforms, which help decide the price as well as bill it. A price agreed in configure, price, quote (CPQ) software becomes a subscription here. Some software makers sell through resellers, using a cloud marketplace for resellers. One of the world's leading billing engines was founded in Chennai.