Introduction

The growth of remote work and the adoption of cloud-based systems are driving the popularity of software-as-a-service (SaaS) offerings. As the market expands, SaaS businesses face challenges in processing payments, as they have unique payment processing needs that differ from regular ecommerce sellers. From managing subscription plans to invoicing to complying with local tax laws and payment regulations, handling SaaS payments is more complicated than collecting one-off payments.

This guide explains SaaS payment processing and the challenges for subscription-based businesses, and what to consider to help you choose the right payment processor.

Understanding the difference between SaaS Processing and Traditional Payment Processing

While traditional payment processing handles one-time payments for individual purchases, SaaS businesses typically use a subscription model for payments. Subscription-based billing requires specialized payment processing solutions that can manage repeated payments, subscription details, tiered pricing, package upgrades and cancellations.

A traditional payment processor acts as an intermediary between businesses and customers by completing the transfer of funds for a transaction. Payment processors are often confused with payment gateways, but payment gateways transmit customers’ payment details to the payment processor.

Every business that accepts online payments requires a payment processor to handle the transactions, but accepting SaaS payments is more complex than single transactions.

Customers will have various subscription pricing plans, recurring billing dates and renewal periods. They should also have the option to upgrade, downgrade, renew, pause, or cancel their subscriptions. Managing and invoicing all this manually is not practicable or scalable.

Using different services and applications for payments and billing can get complicated and building in-house systems is expensive. Instead, a specialist SaaS payment processor, like Transfi, provides tools focused on enabling SaaS businesses to manage their subscriptions and payments efficiently, automating as much of the process as possible. They can also help businesses gain insights in their customers based on their transaction data. SaaS billing systems can charge customers automatically at regular intervals (e.g., monthly or annually), and support ongoing customer engagement and retention strategies.

Challenges of SaaS Payment Processing and How to Solve Them

As subscription management is more complex than one-time sales, SaaS businesses can face several challenges in collecting and managing payments. Below are some common issues and solutions to help deal with them.

1. Complex Invoicing

As the number of subscribers grows, managing their various subscription plans, payment amounts, and due dates becomes more complicated. This is especially the case if you offer free trials or discounts. Generic payment systems may not be able to account for this, creating more work for your team.

Choose a specialist SaaS billing platform that can invoice and collect recurring payments from various subscription profiles and allow you to customize your plans and payment schedules easily.

2. Payment Failures

Customer subscriptions can fail to renew because of expired payment cards, insufficient account funds, or technical problems. This can result in cancelled subscriptions, known as involuntary churn.

Use a SaaS billing system that offers customers multiple payment methods and notifies them if their payments fail. A platform that implements automated dunning processes can help prevent involuntary subscription cancellations.

3. Security Concerns

Collecting and storing sensitive payment details for a large and growing number of subscribers securely is critical to foster customer trust and comply with industry regulations.

Use a payment processor that implements advanced security measures such as encryption and tokenization and complies with standards such as PCI DSS to protect customer data.

4. Scalability Issues

As a SaaS business grows, it’ll need to handle an increase in transaction volumes and accommodate customers using different languages, currencies and payment methods.

Choose a SaaS billing platform that can support scaling up so that it can maintain your service quality as the business expands.

5. Global Compliance

Navigating tax laws and financial regulations in various countries is complex and can expose your business to legal risk.

Use a payment processor that is designed to support international business and complies with local regulations. This will help reduce compliance burdens and make it easier to expand internationally.

6. Revenue Analytics

As your customer base and transaction volumes increase, it becomes more challenging to generate reports and gain insights into how the business is performing.

Choosing a payment processing platform that features revenue management and analytics tools can provide a comprehensive view of sales trends and customer behavior, and identify potential issues so that you can address them.

7. Integration complexity

As Saas businesses grow, integration with payment gateways and third party payment services into the platforms and websites can get complex. Problems with integration have a bad influence over the businesses growth and scalability when it comes to combining a set of solutions to provide the best billing services.

When choosing a payment processing platform, integration capabilities of the platform must be tested as it gives customers a better hold over their desired payment options. 

8. High transaction fees 

With higher transaction volume comes associated transaction fees per transaction. If the opted platform charges a high fee, it can lead to eroding profits with every advancing transaction. 

Businesses must choose platforms which charge minimum transaction fees without deterring from the main goal, i.e. making the recurring payment easier for the parties involved. 

9. Limited payment methods

Customers might turn to other services if there is a lack of payment methods available for them to sign up for payments on the platform. With growing business across the borders comes the responsibility of providing a flexibility of payment methods to choose from to accommodate the requirements of various customers from different corners.

Saas businesses should look at the best solutions which cater primarily to world audiences hence providing a plethora of payment solutions and not missing out customers because of discrepancies in payment methods.

10. Churn management 

Customers cancelling their subscription is a major fall off which occurs because of several reasons like replacing the product and pricing not working out, etc. Some of the solutions to these are not in the hands of recurring payment platforms while some fall offs can be managed by providing solutions like better pricing, more flexibility with payments, easing and automating the process entirely for the customers, and more.

Choose a SaaS billing platform that can support churn management in the best ways so that it can maintain your service quality while retaining and growing customers. 

Choosing a Payment Processor for SaaS Businesses

Selecting the right payment processor that consolidates billing, payments and subscription management tools is key to the success of a SaaS business. There are several factors to consider.

1. Billing features: Your payment processor should provide SaaS tools to support various billing methods, offer multiple payment options, provide robust fraud protection and include robust subscription management.

2. Costs: Compare the transaction fees, setup costs, and additional charges from various processors to fit the best fit for your budget.

3. Security and compliance: You’ll need a processor that implements strong security and fraud prevention measures, complies with industry standards to protect customer data and collects taxes from customers correctly.

4. Customizability: The ability to customize functionalities and integrate with third-party software can help create a more seamless experience.

5. Scalability: Ensure the processor you choose can accommodate growing transaction volumes and expansion into new markets.

6. Localisation: If you plan to sell internationally, choose a payment processor that supports multiple languages and currencies.

7. Reliability: Read customer reviews to find a processor that has positive testimonials and provides responsive customer support to minimize disruptions.

How Transfi Provides the Simple Way to Manage SaaS Payments

If you run a SaaS company and receive payments from customers in multiple currencies, a Transfi account can save you money on currency conversion.

Transfi is not a bank, but a payment solution and a smart alternative to banks. You can open an account online with no monthly fees or minimum balance requirements.

Receive international payments at the mid-market rate, without hidden markups. Major currency account details allow you to receive payments like a local and hold over 40+ currencies in one place, so you can convert funds at the best exchange rate.

Conclusion

To grow, businesses need real recurring payment processing solutions. A first-rate recurring payment processing solution does a lot of behind-the-scenes work to ensure that your customers’ payments go through without a hitch at every point in the billing schedule. Your customers likely have diverse preferences, so you should look for a billing solution that can handle every imaginable scenario.

If you need a complete subscription management platform, check out Transfi’s subscription and billing solutions to understand what capabilities to look for, what questions to ask your internal stakeholders and vendors, and what terms you need to know.

Transfi allows you to set up various recurring and one-time payments, regardless of business size. Our robust platform accepts major payment methods and currencies and is designed for enterprises to maximize profits through simplified recurring payments. 

Transfi can be integrated into your company’s payments ecosystem, combining subscription management, advanced features, and billing elements in a solution that supercharges revenue growth. 

Frequently asked questions (FAQs)

1. What is subscription payment processing? 

Subscription payment processing is a payment service designed to manage recurring payments for subscription-based businesses. When paired with online billing software, it automates most tasks related to recurring payment collection, such as secure card data storage, payment pre-authorization, and embedding payment links on recurring invoices. 

2. How to process subscription payments for Saas business platforms?

The best payment processor for subscriptions uses a secure payment gateway (like Transfi) to start the process of collecting subscription payments. It captures, stores, authenticates, and eventually communicates the customer’s payment information to financial institutions.

3. What are the benefits of recurring payments for your business?

• Predictable revenue system
• Enhanced customer experience
• Flexible payment terms and packages
• Minimized effort
• Error and fraud defence
• Data driven decisions 

4. What are the challenges associated with recurring payment solutions?

• Complex invoicing
• Payment failure
• Security concerns
• Scalability issue
• Global compliance 
• Revenue Analytics
• Integration complexity
• High transaction fee
• Limited payment methods
• Churn management 

5. Who should use recurring payment solutions as a Saas platform?

Any businesses that offer products or services at a recurring frequency such as daily, weekly, monthly or annually, can make a good use of recurring payments. This covers software, content, services industries, etc.