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Small Business Tips

How to Set Up Subscription Billing for Your Small Business

Manasa Reddigari

Do you often struggle with customers who are here today, gone tomorrow? Your business might try setting up a subscription billing system. Read on to learn why and how you should set up subscription billing.

What is subscription billing?

It's a billing system in which merchants bill customers for a fixed amount on a recurring basis. The bill gets issued to the customer at the same time during each billing period. The billing period itself could be monthly, quarterly, or only once or twice a year.

Examples of subscription billing abound in daily life. Let's say you have mobile phone service or access to a streaming media platform or a gym. On a certain day each month, an invoice from the merchant gets sent to you. The invoice is a request for you to pay in advance for another month of the subscription.

What types of businesses can use subscription billing?

Your business is a good candidate for a subscription billing system if: 

  • You sell products that customers buy on a repeat basis. An example might be a business that sells a subscription clothing service. 
  • You sell services that people need to access on an ongoing basis. An example is web-based software. 
  • Selling product or service support. You can use subscription billing for product protection or replacement plans. 
  • You can put in place the right infrastructure. Buying subscription billing software is one choice. Or, you can develop an in-house version. You will use the infrastructure to charge, refund and manage subscribers. 

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Why would your small business want this? 

The benefits of subscription billing extend to both your business and its customers. They include: 

  • Putting accounts receivable on auto-pilot. It ensures that you never forget to send an invoice. 
  • It's a stable revenue source. You can depend on your customers to pay you for a set amount at a set time each month, much like a salaried employee does. This can do wonders for your cash flow and financial projections. 
  • It makes it easy for customers to budget. Customers will get charged for the same amount each month. This makes it easier for them to estimate the cost of your product or service and work it into their budgets. 
  • Avoids repeat data input. Customers have to send in their payment details every time for one-time payments. With subscription billing, they only have to send in their details once. 
  • It boosts customer retention. Subscription billing encourages one-time customers to become long-term customers. The repeat customers you gain can help boost your customer retention rate.

How to easily set up subscription billing 

Follow these steps to set up subscription billing for your small business in no time: 

Step 1: Decide whether you want a hybrid billing system or a billing stack. A hybrid product like Stripe Billing is easier to set up. It bundles the subscription billing software and a payment gateway. The gateway will help process card payments. The stack has separate gateway and software components you must integrate. 

Step 2: Configure subscription settings in the software. This process varies by software product. In Stripe, you'll need to define products or services. You'll need to set up a pricing plan that sets forth how much to bill and how often. You will then need to create customers and associate plans with customers. 

Step 3: Configure invoice settings. You can have the software auto-charge a customer's chosen payment method. Or, have the system send out invoices by email. 

Step 4: Test billing. Use built-in features in the software to test the workflow of the billing system. 

Step 5: Take it live. Roll out your subscription billing system to customers when you're sure it works. 

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