Billing and revenue recognition in SaaS Business: What, why and how?

Billing and revenue recognition are among the most important data assets for a CFO in SaaS business. It’s the equivalent of production and warehouse management data in manufacturing. 

Sadly, both are still an afterthought for many, and they are only taken seriously once the scale-up phase has already reached some momentum and either the billing process or business transparency – or both – are falling behind. 

In this article, we explain:  

• what billing and revenue recognition really mean for a SaaS business 

• why they are so important  

• how to approach them from a business and technology perspective 

Why do billing and revenue recognition matter so much in SaaS? 

Billing and revenue recognition are the cornerstones of financial management and operational insights in SaaS business. They need to be in order if you want to have transparency into your business. 

On the surface billing might seem simple: It is the process of invoicing customers for the service they’ve purchased. But billing is also a strategic tool.  

Revenue recognition is the rule-based process of determining when the business has earned the money it has invoiced. It is slightly more abstract because it is based on fulfilment of contractual obligations rather than cash movements.  

1. They form the core operational data layer of the business 

In manufacturing, inventory levels, production inputs and fulfilment capabilities inform you on what is happening in the day-to-day operations. In SaaS business, revenue and billing data does the same. It reflects customer contracts, usage, renewals and payment status.  

Without accurate billing and revenue data, your business can’t operate with financial clarity. You could be making business critical decisions based on inaccurate or incomplete data. 

2. They are necessary for financial control and compliance 

Accurate data on e.g. warehouse inventories is crucial for financial control and transparency in manufacturing. No CFO – or auditor – would settle for anything less. 

The same goes for revenue recognition and billing in SaaS: There are IFRS and regional tax regulations to consider – and related audits and penalties to avoid – but being aware of what is going on in the business is at least as important. 

3. You can’t forecast or plan the future without them 

You can’t plan for tomorrow without knowing what goes on today or what happened yesterday – and billing and revenue are the key metrics for what is going on in your SaaS business. 

Billing and revenue data is one of the most important building blocks of all business analytics. Accurate billing data helps you predict cash inflow, manage working capital and plan your growth efforts or investments. With effective revenue recognition you can align your revenue with service delivery in near-real-time and provide realistic financial forecasts to guide your business forwards. 

As your product grows, billing and revenue recognition become more complex 

An often heard argument against automated billing and revenue recognition is that “we are a simple SaaS and don’t need it”. 

That is a rare thing among long-running B2B SaaS products. Even if your rates are fixed right now, chances are that, sooner or later, you will have one or more of the following in place:  

• price tiers 

• discounts 

• usage-based billing (number of transactions, the amount of data processed etc) 

• one-off fees (onboarding fees, integration fees etc.)  

B2B SaaS products invite complexity as they mature. And if you don’t anticipate it by developing processes and a financial technology stack, it might become an issue down the road.  

At some point, your sales and product teams will probably want to test price tiers, bundles or usage-based billing to increase revenue. If your billing processes do not support those things, it will become a business-limiting problem. 

This is why you should aim to harmonise and automate your billing and revenue recognition processes early – before a major scale-up phase.  

Billing is also a strategic tool 

But automating your billing and revenue recognition isn’t just a forced investment. It actually benefits your business. Billing is also a strategic tool that can be used to benefit your overall business.  

It can be used to influence cash flow, customer behaviour or operational efficiency – depending on the choices you make. 

• You can maximise your cash flow by encouraging your customers to pay upfront for a year’s subscription. That will allow you to hire more people or invest into other growth efforts. 

• Some of the worst customer experiences come from inaccurate invoicing. Having accurate, and preferably automated, billing processes in place is then a way to avoid bad experiences – and churn. 

With proper billing and revenue recognition processes and tools in place, you are free to test different types of billing (and pricing) strategies without compromising your data or transparency.

Which technology helps make billing and revenue recognition easier – and how? 

So how should you approach billing and revenue recognition in your SaaS business? Well, there are four key things to consider. 

1. Where do your business and product stand right now and where are they going? 

The technology choices you make have far-reaching consequences, so to make the right decisions you need to think ahead.  

If your pricing is currently a fairly straightforward one, where price tiers or usage-based billing aren’t relevant, that’s fine. But will it remain like that? Ask your sales and product teams, whether they have been thinking about more dynamic pricing options.  

Also, do you think your product might be growing from a self-service SaaS into something more complex which will require you to expand your offering into professional services such as implementation or integration projects? 

The answers you get should inform your choices. 

2. Consider your foundational technologies, such as your ERP and CRM 

In terms of ERPs and CRMs, there are many fine choices available for SaaS businesses. 

There are a few things you should consider, however.  

First, make sure your ERP and CRM can easily be integrated. To have accurate data, you will need to combine billing and revenue data from the ERP with contract data from the CRM.  

Second, choose a system that will scale with your business. 

Our suggestion? 

NetSuite is the choice ERP for thousands of SaaS businesses across the globe – and for a good reason. It natively supports most of the fintech needs that your organization has and will have. You can expand its use according to your business needs and there are plenty of readymade expansions and integrations to support your future requirements as well. 

It even has an inbuilt CRM. But it also plays well with HubSpot, Salesforce and any other CRM systems you might use or consider. 

3. Billing tools – what are your options? 

The first choice you need to make regarding your billing tools, is that do you pick an expansion to your ERP or a stand-alone application. 

That choice will define which system you should use for revenue recognition and your integration needs. 

Our suggestion? 

If your ERP is NetSuite, we suggest choosing either Staria’s own Staria Subscription for simpler billing needs or ZoneBilling for more complex ones.  

Both operate on top of NetSuite, so you can handle revenue recognition within the system and minimize integrations. With them you can handle any billing scenarios you might consider.  

You can also rest assured that you are able to address whatever compliance requirements you might be facing regarding revenue recognition. 

If you decide to choose a stand-alone billing system, make sure that you use the same tool for revenue recognition and only export the finalised data to your ERP. That way you make sure the revenue data is accurate. Otherwise, cancellations and changes to a billed subscription can cause trouble in accounting. 

4. Mind your integrations 

Integrations are a key part of the modern technology landscape. In terms of billing this means, at the minimum, connecting your ERP, CRM and billing software. And possibly the back-end of your product, if you have usage-based billing in place. 

Our suggestion? 

Plan your integrations well and try to keep them as simple as possible. 

Bonus point: Do you have your forecasts and SaaS specific metrics in place? 

Having accurate billing and revenue data is the foundation on which you build everything else. This is true no matter what your fintech stack is and how your data is formed. 

What comes next, is SaaS specific metrics for reporting and forecasts for planning ahead. 

If you feel confident that your data is in order, but your reporting or forecasts are not, take a look at our all-in-one, future-flexible BI solution for software and SaaS Businesses, Naviloq.