What is Consolidated Billing?

Consolidated billing is a billing system that consolidates several subscriptions or transactions into one bill. This makes it easy to bill, with the business and the user finding it easier to handle.

When customers subscribe to multiple services, this approach becomes more beneficial. For instance, in a SaaS company, a user could subscribe to different software packages, add-ons, cloud storage subscriptions, or upgrades.

Traditionally, you would probably like to charge these services individually, but you can end up generating multiple invoices for one user in the same billing period. Additionally, it becomes confusing and leads to a sloppy billing process. This is where consolidated billing comes in to save the day. It provides a unified view of all the customers’ subscriptions and bills in a single invoice.

The process of consolidated billing

This systematic approach usually involves four main steps:

Purchase

The customer’s journey begins when they subscribe to multiple services or products from the same company. To put it in the SaaS business context, it would play out as users getting a variety of offerings like different software packages, add-ons, or even a tiered subscription.

When customers choose their services, it forms the basis for the consolidated billing process. However, it is crucial to note that the user’s subscriptions could differ in terms of billing cycles, pricing, and contract terms.

Charge

In this step, you determine charges for all the subscribed services. This is a critical step since it places a price on what the customer will have to pay. The charges can be in the form of recurring subscription charges, usage charges, a one-time charge for any add-on, or any other added charges or fees.

Just ensure that the costs are calculated accurately and clearly to prevent any confusion and disputes in the future.

Billing

Once the charges have been calculated, the next step is to create the bill. Rather than generating separate bills for each product or service, all the charges are amalgamated into an individual invoice.

This consolidation provides a clear summary of all the user’s orders and subscriptions. It states the cost of every service, the amount due overall, and the payment deadline. The combined bills make the billing process easier and simpler for customers to manage their payments.

Invoicing

The final step is the invoicing. The consolidated bills are turned into invoices, which can then be sent to customers for payment. The invoice involves all the details of the user’s charges and subscriptions, as well as payment methods and terms.

Moreover, it acts as a formal request for payment and a record of the transaction between an organization and the user. Therefore, the invoices should be clear, easy to understand, and detailed, ensuring it is easier for customers to review their bills and make payments.

Benefits of consolidated billing

Consolidated billing has many advantages that aren’t only limited to your SaaS company but also benefit your subscribers, streamline your operations, and enhance the billing experience.

Here are a few of the key benefits you and your users can expect to get from consolidated billing.

Smooths out the billing process

While consolidated billing is a little complicated, it simplifies the billing process by minimizing the number of invoices created. Therefore, the number of errors and administrative tasks is also reduced, increasing productivity and efficiency, and delivering cost-effectiveness.

Lesser missed or delayed payments

Consolidated billing brings down the time spent on chasing unpaid invoices. Thus, the efficiency improves, and your revenue keeps flowing. For your customers, such billing solutions offer a clear view of their total spending across service and product subscriptions for a particular billing cycle, making it easier for them to pay on time.

Streamlines and speeds up invoice processing

Generating multiple invoices for individual customers takes up a lot of time and increases the chances of errors, all while affecting productivity. Consolidated billing eliminates the need to create multiple invoices, hence speeding up invoice processing. It also reduces errors that could affect payments. 

More revenue opportunities

While it may not be apparent straight away, consolidated billing can help retain users, which requires less investment than acquiring new ones. It also motivates customers to buy additional subscriptions in the form of discounts or bundles. Moreover, your customers become more loyal to your product/services.

Improves customer experience

Given the simplicity, transparency, and convenience of consolidated billing’s payment process, SaaS businesses can give a frictionless billing experience to their customers, all while reducing any billing disputes.

Key factors to consider when implementing consolidated billing

There are some factors to be considered before you decide on using consolidated billing for your subscription business.

Same billing date

To create a consolidated invoice for various subscriptions, they all need to have a similar billing date. If the billing dates differ, you can consolidate them by using either of these two approaches.

The bills of all the subsequent subscriptions are banded together and invoiced on the first subscription’s billing date.

For example, imagine a user subscribes to a product on April 10. So, this subscription needs to be renewed on the 10th of every month. Later on, the same user subscribes to three more products from the same business at different times, as listed below in the table.

To consolidate these subscriptions and create a single invoice, they must have the same billing date, which isn’t the case here.

So, in such a situation, on the billing date of the first subscription (10th of every month), the consolidated invoice will be created with the pricing of the remaining three subscriptions prorated accordingly. 

Using another method, you can set a new common billing date for all the subscriptions to produce a consolidated invoice.

For instance, a user has two subscriptions that get renewed on different dates.

Now, a new billing date (the 20th of every month) is introduced for the user. The already present subscriptions will have this as their billing date on the next renewal, making you raise corresponding prorated charges for each subscription.

Now that both subscriptions have the same dates, their invoices can be consolidated to generate a new invoice on the 20th of every month. The invoices are combined for both subscriptions, and you can adjust the billing dates to coincide with the new set payment date (August 20).

In order to do this, apply prorated charges in Subscription X for the billing period of August 1 to August 20. Whereas, for subscription Y, the prices can be applied for the days between August 15 and August 20. This way, you will get the same billing date for both subscriptions, X and Y.

Consistent collection method

Subscriptions included in consolidated billing have the same payment collection method (be it automated or offline).

For example, let’s see how the invoice consolidation happens for a customer who has subscribed to multiple services.

In this scenario, as subscriptions A and C share the same collection method (offline), their invoices will be consolidated, whereas a separate invoice shall be raised for subscription B.

Consistent payment method

The consolidated invoice integrates multiple subscriptions’ charges into a single transaction. So, the invoice is paid by a single payment method (e.g., direct deposits, ACH, or paid in full by credit card).

Let’s consider an example below of a single customer.

In this example, the payments for subscriptions A and C are gathered through credit card, while B and D are collected through ACH. Therefore, you will have to create two consolidated invoices: one for subscriptions A and C, and another for subscriptions B and D.

Consistent currency

The payments of the subscriptions that you want to consolidate must have the same currency.

For example, a customer has multiple subscriptions; see the table below:

The currencies of subscriptions A, B, and C are similar (USD). So, they’re consolidated to create a single invoice.

Consolidated billing best practices

Although traditional billing and consolidated billing are almost similar, having a full understanding of industry best practices is paramount. Here are some consolidated billing best practices for better implementation of the billing process. 

Determine the billing cycle

Keeping a close eye on a billing cycle in consolidated billing is important. This becomes especially crucial for businesses that offer ongoing services and long-term contracts. By figuring out the billing cycle, it becomes a lot easier to bill your customers.

Pro tip: Keep the billing cycle short to avoid risks of missed payments and ensure a continuous inflow of cash.

Details are key!

Missing or incomplete invoices can lead to delayed payments, as users may fail to understand the billing breakdown. Hence, it becomes critical to include all the details in the invoice. The details may involve:

• Date of issue of the invoice
• Invoice number
• Subscribed plans by customers
• Subscription IDs
• Payment modes
• Total payable amount including taxes
• Payment’s due date
• Customers’ contact details
• Any additional charges for single-time use services
• Any other business-related details

Transparency of charges

Another best practice is to provide a clear breakdown of all the charges in the invoices. It includes an itemized list of services provided, taxes and fees, usage or quantity details, discounts or vouchers, the total bill for each service, unit prices, and more.

This practice helps in gauging business performance and removes any room for disputes or queries.

Conclusion

In conclusion, consolidated billing improves and simplifies financial management by combining multiple subscriptions into a single, transparent invoice. Also, it enhances customer experience, ensuring timely payments, making it one of the most important strategies for SaaS businesses that want to improve efficiency, diminish complexity, and give a seamless billing experience.