Subscription billing management isn’t easy – no question about it. The subscription model is about building, optimizing, marketing and selling packaged offerings. It’s repeatable and it’s often high velocity. These packages may have some components that create some complexity to the billing process – maybe a bundle of services, or some offerings may be usage-based for example, but they’re still a set number and variety of bundles.
Contract billing management, however, must deal with the totally unique “one-off” nature of each contract. Contracts aren’t always repeatable – there are often multiple moving parts, and multiple billing or delivery events that need to be negotiated both during the initial contract agreement, and whenever there is a change to the terms. Contracts deal in large enough dollar amounts that they are being negotiated and sold individually and via a salesperson – these are not normally e-commerce sales. So there’s an individualized customized relationship that must be managed from a billing contract administration perspective. You need to manage and track the number of events that might have an impact of when you can bill, when you can recognize revenue, and the timing related to customer delivery. You might have transitions, co-terminus changes, or escalators – there can be a lot of complexities to contracts. In this model, every customer is treated uniquely. There may be similarities from customer to customer, but each customer moves forward on their own path.
Dependencies are another factor that may contribute to contract billing being harder than subscription billing. Delivery or customer acceptance or other external events create dependencies. Whatever form they take, these external dependencies often impact the timing of billing and revenue recognition – and their impact on the contract is important to track as part of the customer business management. It’s not as simple as turning a subscription on and off, with an email notification that “you’ve signed up, and here’s your receipt.” Contract billing may have similarities with subscription billing, in that they both may need to handle subscriptions, usage, milestones, and so on. But they’re different because of this one-on-one deep relationship that changes and needs to be managed over time because of the dependencies.
A third difference between contract billing and subscription billing is billing and revenue may be completely separated. No single billing can be the driver for deferred revenue – the contract itself may be the source of the revenue, the definition of the sale. By this I don’t mean that revenue is deferred, I mean that the sale required to drive the deferred revenue management is defined by the contract – and not by individual billings against the contract. This requires the contract to understand the nature of bookings, that invoicing on a contract follows the terms negotiated with the customer and does not define revenue, and that the deferred revenue and billing management requires additional attention to correctly manage both. These three characteristics create complexities that are not handled by most accounting and ERP systems, and are also beyond subscription billing management systems.
Even though contract billing management is so much harder than subscription billing management, there is a solution – Tensoft Revenue Lens. If you need more than just subscription billing management, please contact us to learn more about Tensoft Revenue Lens today.