What is a billing management system, and how to pick one?
Introduction
Almost all businesses rely on software to streamline operations and solve workflow challenges. Whether it's enabling customers to book classes at your yoga studio, planning engineering sprints for your software team, or managing communication with customers across industries, these tools are essential for smooth day-to-day activities.
One crucial workflow that requires specialized software is collecting payments. Before a merchant can even receive funds, several tasks must be handled, such as:
Tracking the contract details, item sold, or usage amount to derive the amount to be paid
Validating the payment amount sent equals the amount due
Collecting required regulatory information
Calculating and withholding the correct taxes
Once the payment is made, the process doesn’t end there. The system must also reconcile the contract, invoice, and payment with internal tools like CRMs, revenue insights platforms, and financial reporting tools that keep your business running smoothly.
All this work is done by a billing system, software designed to handle the workflows that come before and after the actual payment. While the billing system simplifies and organizes the workflow, other components like payment processors and payment gateways are involved in executing the actual payment transaction. Together, these systems form a seamless solution to manage and facilitate the entire payment process.
As one of the most important pieces of software for a business, we will explore in this article billing systems, what billing systems do, and how to pick one.
Here is what we will cover in this article:
What is a billing management system?
What do billing management systems do?
What are the key considerations when selecting a billing management system?
How do you set up a billing management system?
What is a billing system?
A billing management system is software that automates and streamlines the processes of generating invoices, tracking payments, and managing financial transactions between a business and its customers. There are a variety of approaches to billing system design.
It typically includes features like:
Invoice creation and delivery
Payment processing and recording
Subscription management
Revenue tracking
Customer account management
Financial reporting
These systems help businesses reduce manual work, minimize billing errors, improve cash flow, and provide better visibility into their financial operations. They're particularly valuable for companies with recurring billing models or large customer bases.
Billing management systems tend to specialize by vertical. This intuitively makes sense. A restaurant has different needs and flows compared to a software business. While a few large billing solutions try to span the entire gambit of possible billing scenarios, there are a large number of specialized players who develop vertical-specific feature sets. For example, Toast offers billing software tailored to the needs of restaurants, while Chargebee, Recurly and OpenPay specialize in subscription management billing, which is often ideal for software businesses.. Since every business in some form or another accepts payment, there are thousands of solutions that each have found their own wedge.
At Loop Crypto, we are a payment processor that enables all billing types from invoicing to subscriptions. We particularly excel in enabling recurring crypto payments with billing management systems that specialize in recurring billing like OpenPay and Chargebee. As shown below, these systems support a customer in signing up, completing an initial payment, and then automating the billing for all future subscription payments.
Recurring billing systems are just one type of billing system though. There are a variety of others. Here is a full taxonomy of different customer billing systems.
Recurring Billing Systems
Subscription Billing: Fixed periodic charges (monthly/annual)
Usage-Based Billing: Charges based on consumption metrics
Tiered Billing: Different price points based on usage thresholds
Hybrid Subscription/Usage: Base fee plus variable usage components
Project-Based Billing Systems
Milestone-Based Billing: Payments triggered upon completion of defined project phases
Fixed-Fee Billing: Single price for entire project scope
Percentage-Complete Billing: Billing based on verified project progress
Time-Based Billing Systems
Hourly Rate Billing: Charges based on tracked time multiplied by rates
Retainer Billing: Pre-purchased blocks of time or service
Time & Materials: Combination of hourly work plus expenses/materials
Transactional Billing Systems
Metered Billing: Charges per transaction or event
Pay-as-you-go: On-demand services without commitment
Per-User Billing: Charges scaled by number of users or seats
Value-Based Billing Systems
Performance-Based Billing: Fees tied to achieving specific outcomes
Revenue-Share Billing: Percentage of client revenue or savings
Success Fee Billing: Payment contingent on specific results
Specialized Billing Systems
Freemium Billing: Free basic tier with premium paid features
Prepaid Billing: Services purchased in advance
Bundled Billing: Multiple services packaged at a combined rate
Each model serves different business needs and customer relationships. Many modern billing platforms can support multiple approaches, allowing businesses to create hybrid models tailored to their specific market requirements.
What do billing management systems do?
So what is billing software? Billing management systems handle all the logic and complexity of managing a payment. This could be calculating the invoice amount based on the products purchased, calculating the required taxes, or enabling coupon codes or free trials. Upgrades and downgrades are another area where billing management systems play a role. If your customer upgrades and needs to pay for the upgrade immediately, the billing system calculates the pro-rated amount and generates the due invoice for the rest of the billing period.
Zooming out slightly, the fundamental value that the billing platform provides is the ability to create an invoice and track when it has been paid to then close that invoice. Over time, billing systems have come to offer additional services like analytics, churn management, and fraud detection, but at its core, a billing system is responsible for the invoice.
Billing systems software sits on top of payment processors, like Loop Crypto, Stripe, and WorldPay. These payment processors execute the invoice for payment. These processor systems are about moving money from the customer to the merchant.
The payment gateway acts as the bridge between the merchant's website (or point-of-sale system) and the payment network, while the payment processor is responsible for managing the actual transaction and ensuring that the payment is approved by the customer’s bank (or card issuer).
Different payment processors support different types of payments, like credit cards, bank transfers, digital wallets, or cryptocurrencies. Payment processors also tend to have a regional focus, enabling payments in specific countries, although this is less true for crypto payment processors which tend to process payments globally. Having multiple processors ensures that customers with various preferences around the globe can easily make payments.
What are the key considerations when selecting a billing management system?
There are many considerations to look into when assessing different types of billing systems. When looking for a billing management system, here are a few questions to explore:
Does this solution work for my business size? (e.g. small business vs. growth stage)
Does this system work for the types of billing I need? (e.g. invoicing, subscriptions, one-time payments, inventory management, metered billing, etc)
Does this system work with payment processors and payment gateways that support the payment methods my customers want to pay in? (e.g. ACH, credit card, stablecoins)
Does this system work with payment processors and payment gateways that support the regions my customers are in (e.g. Americas, Europe, etc)
Since this post is largely about workflows, we’d be remiss to not mention that you should look for a billing management system that integrates easily with your existing tools and provides a user-friendly experience for both you and your customers. For example, if you are using QuickBooks for accounting, ensure the system has a robust integration into that system. It will save you hours (potentially days) of work every month!
From our early days at Loop, we identified the importance of interoperability. That’s why we built Loop to be flexible enough to fit into billing management systems in a way that is compatible with how this data then flows into other systems like accounting software.
In addition to integrations, you should also consider your business setup. If you have multiple legal entities within your business or require subaccounts, ensure that your billing management system can handle this complexity.
Finally, evaluate the cost of the billing management system and ensure it aligns with your business’s revenue model. Many billing management systems operate with SaaS billing models that have a usage component that will calculate charges based on either the count or amount of invoices managed. This cost is in addition to the payment processing fee (the ubiquitous 2.9% credit cards charge) charged by the payment processor.
How do you set up a billing management system?
Once you’ve selected your billing system, it’s now time to start implementation. When you add a new billing and payment system, you need to begin by mapping out your specific business requirements and workflows. First, document your billing cycles, payment methods, invoice formats, and revenue recognition rules.
Implementation typically follows a phased approach, starting with system configuration. If you already have customers, you will need to consider how to approach data migration and moving customers over to the new system. You may want to start by adding net new customers to the new billing system while phasing the migration of existing customers to the new system to ensure a smooth transition. Before full deployment and running any type of migration, conduct thorough testing across different billing scenarios to verify accuracy.
After launch, closely monitor the system's performance and gather user feedback for continuous improvement. Establish clear metrics to measure the effectiveness of your billing system, such as reduction in billing errors, improvement in cash flow, or decrease in time spent on manual billing tasks. Plan for regular reviews of your billing system to ensure it continues to meet your needs as your business grows and evolves. Consider implementing a feedback loop with customers to understand their experience with your new billing processes, as their satisfaction is ultimately critical to your success.
Conclusion
Businesses today can launch faster than they ever could thanks to software that helps automate core tasks. Perhaps one of the most important pieces of software is the billing management system. This system sits on top of payment providers that together create a seamless experience for merchants to accept payment. Choosing the right software means picking a system that meets your company’s needs, including offering all the payment methods that your customers want to pay in.
FAQ
What is a billing payment system?
A billing payment system is a platform that automates and manages a business's billing and invoicing processes, streamlining revenue cycles, enhancing customer experiences, and providing insights for business decision-making. In addition to managing the invoice process, these systems will typically connect with payment processors to enable the payment of the invoice that is generated via card, wire, ACH, or cryptocurrency.
What is a customer billing system?
Customer billing system is an analogous term to billing payment system. It is often referred to as a billing system or billing software as it is a platform that automates and manages a business's billing and invoicing processes, streamlining revenue generation and payment collection. These systems connect with payment processors and also handle the tracking of confirmed payments.
What billing system should I use?
The decision on which billing system to use is highly dependent on your particular business needs and revenue models. As discussed in the article above, billing systems tend to specialize around specific verticals or types of revenue models, such as recurring revenue or usage-based billing. You should also ensure that the billing system integrates with the payment providers that your customers are most likely to use to remit payment to your business.
Is Stripe a billing system?
Yes, Stripe offers a billing system called "Stripe Billing" that helps businesses manage recurring payments, subscriptions, and invoicing, in addition to its core payment processing capabilities. Loop Crypto integrates with billing systems like Stripe enabling companies to accept one-time crypto invoicies and recurring crypto payments.
What is the best billing system for recurring payments?
For recurring payments, popular and well-regarded billing systems include Recurly, Stripe Billing, OpenPay, Chargebee, and Zuora, each offering robust features for subscription management and automation. These systems integrate with various payment processors to enable you to generate invoices and bill your customers on a regular basis.
