The Ultimate SaaS Billing Cheat Sheet

Which components do I need?

The SaaS billing process

A simplified model

3. The server requests pricing / 4. The subscription management

discount information. platform processes billing logic.

SUBSCRIB E

1. The customer 2. Your web 5. The payment 6. The merchant account

subscribes to application gateway creates authorizes the transactions
your product. handles the a secure card and finalizes the payment
request. transaction. into the account.

Subscription management platform Payment gateway Merchant account

Manages most of the logic of payment Handles the heavy lifting of Also known as the ‘processor’ or
plans, discounts, etc. This allows for transactions and securely stores ‘acquirer’, this is a specific type of bank
relatively easy billing model credit card details. Usually offers account for merchants, either sold
experimentation. some level of fraud protection. directly or through resellers (ISOs).

What features are important to me? What fees and charges apply?
Invoicing One-off charges
Allows official invoices to be generated and sent to the Usually associated with initial setup fees due at time of
customer for their records. signup.

Analytics Monthly subscription

Offers deeper insights into subscription customers using The primary charges for any SaaS business — a monthly fee
churn rate and other metrics. paid for a specific level of ongoing service.

Tax handling Transaction fees

Automatically calculates and charges applicable tax rates Charged as a percentage of each transaction value or a flat
for the customer’s region. rate per transaction (or both).

Integrations
Connects with third-party platforms and enables extended What forms of payment are accepted?
functionality.
Credit & debit cards
Mobile support
Enables customers to purchase your product on a mobile
device with a good user experience.
Electronic payments
UX customization
Allows you to have greater control over the look and feel of
the purchase flow.

Tip
When evaluating billing system features, it's worth planning for the future. If you have to migrate to another platform later on
to utilize a certain feature, you might duplicate a lot of effort.
 Security features SaaS billing glossary
Stored data encryption Acquirer
Most payment gateways store credit card information. The A financial entity offering merchant payment processing services.
only way to handle this securely is with enterprise-level Activation fee
encryption. A one-time fee charged to the customer for initiation of the service.

Secure connection Authorization

The browser’s connection to the gateway can be secured The process of gaining permission from a bank to transfer funds to the
with SSL, using an HTTPS connection. This should be the merchant account.
only way to connect to the gateway. Billing cycle
The period of time between each billing event in a contract.
Authentication
The end user should be required to authenticate with the Billing in advance
system. User sessions should expire after a set period of Charges for a service, wherein the service is provided at a later date.
time, and no plain passwords should be stored. Billing in arrears
Fraud protection Charges for a service that has been delivered in the previous billing
period.
Most payment gateways provide functionality to auto-de-
cline suspicious transactions, and should provide function- Card verification value (CVV)
ality for you to report transactions you suspect to be An anti-fraud code printed on the signature panel of credit and debit
cards.
fraudulent.
Chargeback
The reversal of a payment due to a dispute, often related to fraud.

Decline
Tip Event that occurs when a payment is blocked by the customer’s bank.

Direct debit
Any billing system you choose should have full details of the
The process of transferring funds directly from a customer’s account.
security features they provide and are compliant with. If they
don’t, you should be suspicious. Gateway rejection
Event that occurs when a payment is blocked by settings or limitations in
the payment gateway.

Home currency
The currency used by the merchant for financial reporting.
PCI Compliance
Issuing bank
The payment card industry data security standard A financial entity which issues credit or debit cards to consumers.
A set of requirements ensuring that all companies process- Merchant account
ing, storing or transmitting credit card data do so securely. A business bank account enabling merchants to operate and receive
This applies to any merchant that has a merchant ID (MID). customer payments.
To be registered as compliant, businesses must be
Overage
evaluated by an external security assessor.
Usage charges that are triggered by agreed service levels being
exceeded.

PCI compliance levels (simplified) Payment gateway

A software-based system for handling credit or debit card transactions.

1. Processes over 6M Visa transactions per year. Refund

Event where funds for a past transaction are returned to the customer.

Rolling reserve
2. Processes 1-6M Visa transactions per year. A proportion of the total transaction value held by the bank and released
on a fixed schedule.

Settlement
3. Processes 20,000-1M Visa transactions per year. The completion of a transaction once all funds have been transferred to
each party.

Vault
4. Processes fewer than 20,000 Visa transactions per year.
A component of payment gateways which securely stores customer and
payment information.

Void
Event that occurs when the payment is cancelled prior to settlement.

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