Subscription billing seems straightforward until you actually implement it. Then you encounter plan upgrades mid-cycle, prorated charges, failed payment recovery, tax calculations across jurisdictions, dunning sequences, and revenue recognition rules that make your accountant nervous. Getting billing right is foundational to SaaS business health.
Subscription Billing Models
Fixed Recurring Billing
Customers pay a fixed amount at regular intervals — monthly, quarterly, or annually. Simple to implement and predict. Works well when all customers in a tier consume roughly similar value.
Metered/Usage-Based Billing
Charges based on actual consumption — API calls, storage used, messages sent. Requires robust usage tracking and often includes a base fee plus variable charges. More complex to implement but aligns cost with value.
Hybrid Billing
A fixed base subscription plus variable charges for usage above included limits. For example, a CRM plan might include 1,000 contacts for INR 2,000/month, with additional contacts at INR 1 each. This is increasingly common because it provides revenue predictability while accommodating growth.
Plan Changes and Proration
Customers upgrade, downgrade, and change plans constantly. Your billing system needs to handle proration — calculating the proportional charges for partial billing periods — accurately and transparently.
Upgrade mid-cycle: The customer should be charged the prorated difference for the remaining days of the current billing period, then the full new plan amount from the next cycle.
Downgrade mid-cycle: Common approaches include applying the downgrade at the next billing cycle (simplest), applying immediately with a credit for the difference, or applying immediately with no credit (not customer-friendly).
Whatever your policy, make it clear in your terms of service and display the exact charges before the customer confirms the change.
Payment Failure and Recovery
Payment failures are the silent killer of SaaS revenue. For Indian subscriptions, failure rates can be 10–20% per renewal attempt due to card expiry, insufficient funds, bank declines, and RBI auto-debit regulations.
Dunning Sequences
Dunning is the process of communicating with customers about failed payments. A typical sequence: retry the payment after 1 day, send a friendly email after 3 days (“your payment could not be processed — please update your card”), retry again at day 5, send a more urgent email at day 7, and a final notice at day 10 before pausing the account.
Smart Retries
Not all retry times are equal. Retrying at the beginning of the month (when salaries are deposited) often succeeds where a mid-month retry failed. Some billing platforms use machine learning to optimise retry timing based on historical success patterns.
RBI Mandate Regulations
The Reserve Bank of India requires additional authentication for recurring payments above INR 15,000. This means customers must approve each charge above this threshold, significantly increasing failure rates for higher-priced plans. Consider pricing tiers that stay below this limit, or offer UPI-based payment methods that have different compliance requirements.
Tax Compliance
GST for Indian Customers
SaaS services attract 18% GST. Your billing system must generate GST-compliant invoices with your GSTIN, the customer’s GSTIN (for B2B), HSN/SAC codes (SAC 998314 for IT services is commonly used for SaaS), and proper tax breakdowns (CGST/SGST for same-state, IGST for inter-state).
International Sales
Sales to customers outside India are considered exports of services and are zero-rated for GST (subject to conditions). However, you may need to register for VAT/GST in other jurisdictions depending on local laws. The EU, UK, and Australia have specific digital services tax rules that apply to SaaS companies selling to their residents.
Revenue Recognition
When a customer pays INR 12,000 for an annual subscription, you cannot recognise the entire amount as revenue immediately. Under accounting standards (IndAS 115/ASC 606), you recognise revenue as you deliver the service — INR 1,000 per month over 12 months. Your billing system should integrate with your accounting software to handle this automatically.
Deferred revenue (the unearned portion) is a liability on your balance sheet. This matters for financial reporting, investor diligence, and loan applications.
Choosing a Billing Platform
For Indian SaaS companies, key requirements include: Razorpay/Cashfree/PayU integration for Indian payments, Stripe/PayPal integration for international payments, GST-compliant invoicing, plan management and proration, dunning and retry automation, subscription analytics (MRR, churn, LTV), and webhook integrations for provisioning.
Evaluate platforms based on your specific needs. A company with 50 customers has very different requirements than one with 5,000. Start with a solution that handles your current complexity, but ensure it can scale as you grow.
Key Metrics to Monitor
Monthly Recurring Revenue (MRR): Your predictable monthly revenue from active subscriptions. Track new MRR, expansion MRR, contraction MRR, and churned MRR separately.
Payment recovery rate: What percentage of failed payments are eventually recovered through your dunning process?
Involuntary churn: Customers lost due to payment failure rather than deliberate cancellation. This should be less than 1% monthly.
Average Revenue Per Account (ARPA): Is this growing over time? If not, your upselling and pricing strategy may need attention.
