What is Third-Party Billing?

Third-party billing is the process of outsourcing all or part of the billing cycle, such as invoice handling, managing billing inquiries, and payment processing, to an external company. This external company usually specializes in providing exceptional billing services, and the goal is to streamline operations and reduce the administrative overhead of the first-party company.

Outsourcing billing tasks, or third-party billing, is a prevalent practice across a range of industries like healthcare, logistics, educational institutes, and e-commerce retailers.

To put it precisely, third-party billing allows organizations to free up their accounting team from daunting tasks and focus on core company activities. The size of the company and the complexity of the payment process determine the services offered by third-party billing companies.

What is the Process of Third-Party Billing?

Third-party billing follows a synchronized process between the vendor, the customer, the service, and the product. By involving an outside entity, businesses alleviate billing loads, typically based on the following process:

Service initiation

A customer presents the need for a service or a product from an organization that is then provided to them. This can be a patient receiving a healthcare treatment, a user requesting a SIM card replacement, or a shopper subscribing to online meal kit plans.

Invoice Generation

After the billing service is delivered, an invoice is generated that includes the billing details of the customer (contact information, product/service price, quantity, and type). However, instead of the original company processing the invoice and billing details, it is sent to an independent third party.

The outside billing entity then either generates an invoice on its own or processes the invoicing sent to it from the first party. That invoice is sent to the customer via email or electronically.

Payment Collection

The customer makes the payment to the third-party billing company.

Payment Processing

After the payment is obtained, it is processed by the third-party billing provider. In this step, the third party and the original company collaborate to resolve any issues, verify the payment, check policy details, and manage the billing information.

Fund Transfer and Reporting

Funds collected from the customer are transferred to the original seller. Fees and commissions are deducted as decided in the initial stage of the billing service. In the end, the third-party billing company gives reports concerning the billing process to the original seller.

What Are the Benefits of Third-Party Billing?

Third-party billing is a popular practice in the B2B market due to its countless benefits for businesses. Let’s understand why businesses incorporate this practice in their operational strategy in detail. The following are the benefits:

Optimized Efficiency

Outsourcing billing to companies that are experts in the field ensures that the work is carried out accurately and that you are paid on time. It also results in less paperwork in your office, which minimizes errors.

Billing specialists offer consistent, complete billing services as per your requirements, meaning faster processing times and less administrative burden on your employees.

With an improvement in efficiency, you can guarantee faster payments, leading to an optimized cash flow. All in all, you can free up time while hitting your revenue targets.

Cost Reduction

Involving third-party billing companies helps businesses maintain their in-house billing staff costs. The training and technology required to finance an internal technical infrastructure may encourage businesses to opt for outside party services. The difference is stark in terms of expenditure.

This factor is especially beneficial in the long term, since it helps free up financial resources for other aspects of your business operations.

Focus on Key Operations

By outsourcing billing tasks to third-party billing companies, businesses can dedicate more time to innovative activities and focus on strategic planning.

This productivity leads to establishing a foundation that repeatedly helps you yield profitable outcomes.

Scalability

As businesses expand, it becomes more complex to handle billing processes. Therefore, third-party billing providers can easily adjust to your scaling requirements, like maintaining increased volumes or different types of billing.

Security

Data security is a concern for businesses across the globe. Third-party billing companies usually have robust security measures. For example, most third-party service providers in the healthcare industry are compliant with the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

This protects patients’ confidential information and holds data thieves accountable. Comprehensive security systems also prevent the risk of fraud.

User Experience

Customer satisfaction is a vital index that measures the long-term success of an organization. When the billing burden is reduced, businesses can allot more time to focusing on customer service, offering multiple payment options, reducing errors, and enhancing the overall user experience.

Ultimately, making your customers happy elevates the rate of customer retention and facilitates prompt payments.

What Are the Downsides of Third-Party Billing?

Although third-party billing offers substantial advantages to businesses, it presents certain downfalls as well. Third-party billing falls short when it comes to high transaction costs, lack of control, integration hurdles, functional dependence, customer resistance, miscommunications, and data privacy risks. They’re discussed in detail below.

High Transaction Costs

Although third-party billing services are cost-effective in one aspect of the process, they may not be as cost-efficient in the others. For instance, third-party billing normally charges a transaction fee that may bring your profit margin to breakeven.

There is also a risk of potential hidden costs, which may mount up at the final stage of the service.

Hence, it is crucial for businesses to review all expenses such as monthly charges, percentage-based fees, and setup fees before signing the contract.

Integration Hurdles

Systems, such as Customer Relationship Management (CRM) or Enterprise Resource Planning (ERP), can be complex and time-consuming to set up and integrate.

In some cases, they may not even be compatible. This leads to operational incompetence and puts a strain on the company.

Lack of Control

Outsourcing billing means losing direct control over the billing processes, like managing payment terms, handling disputes firsthand, and customizing invoices.

Upholding company standards and expectations is a tough task; however, to avoid any stones in the path, especially related to customer service quality, requirements should be thoroughly communicated to the outside party.

Customer Resistance

One of the major disadvantages of third-party billing is the resistance shown by the customers. Customers may want direct contact with the original company regarding various concerns, like payments and data security, and due to a lack of trust.

In certain instances, third-party involvement may complicate the billing process, which is why customers prefer direct contact with the business.

Miscommunication

An uncoordinated billing service process between the business, the billing service provider, and the customer may lead to detrimental consequences. It can cause customer discouragement and increased inaccuracies, resulting in revenue loss.

On top of that, it triggers a lack of transparency, which makes it harder to reach an agreement.

Clear communication and building trust are key ingredients of a streamlined billing service agreement.

Functional Dependence

When a company gives up control over the billing operations, any challenges faced by the third-party service provider would have an immediate effect on it as well.

For instance, if a provider faces service discrepancies, technical issues, or ceases operations altogether, it is a major blow to the company’s workflow and credibility.

Data Privacy Risks

Handing over sensitive customer data and business insights to a third-party billing provider always comes with its risks. It increases the likelihood of unauthorized access and data breaches.

Failing to adhere to regulatory standards and PCI Compliance can prove ruinous for your company. To avoid such risks, it is always good PR to encrypt, tokenize, and inculcate the latest data security features in your payment solutions.

What Are the Alternatives to Third-Party Billing and Why Should You Make the Switch?

Businesses these days are looking for efficient ways to manage their financial operations. And rightfully so. With the digital world supercharging and the need for improved expense management increasing, a company should always have alternative options available.

Before we look at the alternatives, let’s understand why businesses should even make this switch.

More Automation

Third-party billing may slow down your business operations. An automated billing system will visibly reduce manual errors and save you time. In addition, it can accurately detect inconsistencies, offer analytical insights, and optimize cash flow.

Robust Integration Capabilities

With modern billing solutions, you don’t need to worry about complex integration issues or dependency on third-party billing. You can seamlessly integrate with business software solutions like CRM and ERP, which enable you to streamline workflows. You get a centralized view of all your financial transactions and customer data.

Enhanced Security

The advent of online data protection laws and regulations has strengthened the security systems of billing software. With enhanced security features and compliance protocols, businesses can carry out their business activities with reduced risk of cyber threats, malware, data breaches, and unprotected networks. Most billing software are in compliance with PCI DSS (Payment Card Industry Data Security Standard).

Refined Customer Experience: Billing software optimize the billing experience through personalization, enhanced checkout processes, simple navigation, and better visual appeal.

Here are the third-party billing alternatives your business can use to handle transactions:

1.      Subscription-Based Solutions

Businesses are readily transitioning from third-party billing to subscription-based models, and for more reasons than one. Subscription-based models like SubscriptionFlow put weight on customer retention and predictable revenue streams. They require comprehensive systems that can handle custom billing cycles, user subscriptions, and recurring payments.

2.      Digital-First Billing Models

Digital-first billing platforms, also known as cloud-based billing platforms, are gaining traction in the business world. They offer convenience and simple integration with other business systems.

In addition, they are highly scalable and flexible, and meet the diverse needs of consumers. They aim for automation and offer various payment methods like digital wallets, credit cards, and cryptocurrencies.

A comprehensive billing software like SubscriptionFlow helps automate recurring billing, supports multiple pricing models, offers tax calculations, accepts direct payment, provides comprehensive APIs, and evaluates key operations.

How to Migrate from Third-Party Billing to SubscriptionFlow’s Automated Solutions

Businesses that have decided to migrate from third-party billing to SubscriptionFlow’s billing software need to assess their migration goals. It is vital to understand that each business will have a different transition process. A standard step-by-step process of switching from third-party billing to SubscriptionFlow is as follows:

Assessment

Identify current business needs, including transaction volume, billing models, and the currencies you need to support. Next, define your transition goals. You might want to migrate to improve efficiency, automate processes, hit your revenue goals, or optimize customer experience.  After understanding your reason, you need to decide whether you will migrate your data all at once or in parts. With SubscriptionFlow, you can easily manage both avenues.

Set Up Your Account

Set up an account with SubscriptionFlow by searching for their website. Add in your business information, verify your identity, and provide bank details.

Get Accustomed to the Range of Features

SubscriptionFlow is an all-inclusive billing software that allows seamless transfer of information from your existing system to the new one. It offers extensive APIs, personalized billing processes, automated invoice generation, and payment handling.

To accommodate a wider customer base, it also provides a self-service portal that manages the entire subscription lifecycle. With a strong reporting and analytics system, your business can benefit from data insights and customer preferences that helps you stay ahead of the curve.

Testing

The most vital step in the migration process is testing. This is where you can identify any challenges and confirm that the migration is accurate and that the automated processes are functioning as expected. Use the migration services offered by SubscriptionFlow to integrate accurate PCI standards.

The initial stage of the migration is especially crucial, so make sure to delve into the intricacies of each system. Give preference to customer feedback, maintain transparency, and take action promptly.

Go Live

After the testing period is thoroughly completed, you can transition to live mode. At this point, keep a close eye on each transaction to ensure operations are running smoothly. If you’re met with any issues, address them timely.

Keep the monitoring phase prolonged for increased success rates. The support service team should be actively mitigating customer concerns.

Transitioning to SubscriptionFlow or any new billing software is a significant change that needs precise groundwork. SubscriptionFlow aims to reduce disruptions and set your business up for long-term success.