SaaS Payment Processing: How to Simplify Your Subscription Payments

The growth of remote work and the adoption of cloud-based systems are driving the popularity of software-as-a-service (SaaS) offerings. The global SaaS market is forecast to grow by $562.6 billion from 2025-2029, driven by mobile app usage – especially in small and mid-sized enterprises due to the subscription-based business model.¹

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, the benefits and challenges for subscription-based businesses, and what to consider to help you choose the right payment processor.

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Understanding SaaS Payment Processing: What to Know Before Getting Started

SaaS payment processing refers to the handling of recurring payments for software that is delivered as an ongoing cloud-based service rather than a one-time download of an application. This offers business customers scalability, ease of use and cost savings.

How SaaS Processing Differs from 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 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.

Benefits of SaaS Payment Processing for Subscription-Based Businesses

Implementing an effective SaaS payment processing system offers several advantages.

Ease of Use and Reliability

If you have a startup SaaS business, you may find a traditional ecommerce payment processor to be good enough for your needs. But as the business grows, you may need to transition to a SaaS payment processor to optimize and scale up your subscription management with tailored tools.

SaaS payment processing simplifies invoicing by automating recurring billing so that you don’t need to invoice customers manually at regular intervals or chase late payments.

Improved Cash Flow and Accounting

Using a SaaS payment processor for payment automation can help to ensure your customers make payments on time. This provides certainty about how much revenue you’ll have coming in and when, helping you to better manage your business cash flow.

Subscription services defer revenue for the length of a subscription, making accounting more complex. But SaaS payment processors can help with revenue reconciliation for a large number of subscriptions, reducing the need for manual processing.

Compliance and Security

Storing customers’ payment details requires your business to comply with payment industry regulations such as the Payment Card Industry Data Security Standard (PCI DSS).²

Specialized SaaS payment processors have security systems in place to protect customer data, ensuring compliance with these standards and reducing fraud risks.

Enhanced Customer Experience

Full SaaS platforms will give customers flexible payment options and the ability to update and change their subscriptions easily. This can help to improve customer satisfaction and encourage loyalty to improve retention hinges.

Software Integrations

SaaS payment processors typically offer various integrations with third-party software and/or an open application programming interface (API) to integrate payments with your website and existing business tools seamlessly.

Key Components of SaaS Payment Processing

An effective SaaS payment processing system comprises several main components.

Recurring Billing

Recurring billing is the core component, which automates the process of charging customers repeated amounts of money at regular intervals for access to the software.

Usage-Based Billing

Allows businesses to charge customers based on their usage, offering flexibility and appealing to customers as they pay only for what they use.

Payment Gateway Integration

Connects the SaaS platform to payment networks, facilitating the secure authorization and processing of customer transactions.

Dunning Management

Dunning management is a process that handles failed payment attempts by notifying customers and retrying charges within the next few days after the billing date.³ This helps to ensure subscriptions are renewed and reduce involuntary churn.

Analytics and Reporting

Provides SaaS businesses with insights into subscription revenue streams, customer behavior, and payment trends.

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.

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.

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.

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 tokenisation and complies with standards such as PCI DSS to protect customer data.

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 can maintain your service quality as the business expands.

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 such as the Payment Services Directive (PSD2) and Strong Customer Authentication (SCA) in Europe. This will help reduce compliance burdens and make it easier to expand internationally.

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.

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.

• 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.
• Costs: Compare the transaction fees, setup costs, and additional charges from various processors to fit the best fit for your budget.
• 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.
• Customizability: The ability to customize functionalities and integrate with third-party software can help create a more seamless experience.
• Scalability: Ensure the processor you choose can accommodate growing transaction volumes and expansion into new markets.
• Localisation: If you plan to sell internationally, choose a payment processor that supports multiple languages and currencies.
• Reliability: Read customer reviews to find a processor that has positive testimonials and provides responsive customer support to minimize disruptions.

Popular SaaS Payment Processors

There are several payment processors that cater specifically to the needs of SaaS businesses:

• Paddle: A merchant of record (MoR) aimed at SaaS companies that provides an all-in-one service including payment processing, billing, and sales tax management.⁴
• Chargebee: A specialist in subscription management and recurring billing that provides features such as automated invoicing, dunning management, analytics and payment gateway integration.⁵
• Recurly: A software and Saas-focused processor that allows users to create an unlimited number of subscription plans and combine them with one-time purchases to simplify billing.⁶
• Stripe: Comprehensive payment processor that supports features SaaS businesses require, including recurring and usage-based billing, fraud prevention, compliance and a suite of APIs.⁷ You can also connect Wise and Stripe to receive international payments without currency conversion fees.
• Braintree: A mobile-focused subsidiary of PayPal that provides subscription functionality, a range of payment methods, recurring billing, fraud protection, and integrations including Chargebee and Recurly.⁸

Discover Wise Business: The Simple Way to Manage SaaS Payments

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Wise is not a bank, but a Money Services Business (MSB) provider and a smart alternative to banks. You can open an account online with no monthly fees or minimum balance requirements.

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Source:
¹SaaS market insights
²Payment Card Data Security Standards (PCI DSS)
³Dunning Management Best Practices - Wise
⁴SaaS Billing Software & Invoicing Solution | Paddle
⁵Flexible SaaS Billing for Growing Businesses
⁶Subscription Management Software for B2C SaaS Industry | Recurly
⁷Billing Platform for SaaS Businesses
⁸Braintree | Enterprise Payment Solution | PayPal US
All sources checked March 2024.

	Editor & Business Expert:
	Panna is an expert in US business finance, covering topics from invoicing to international expansion. She creates guides and reviews to help businesses save time and make informed decisions. You can read more useful business articles on her author profile.

	Author:
	Nicole is a professional journalist with two decades of experience in writing and editing, she has also run her own freelance business for the past five years. Her expertise spans the financial and technology industries, including payment processing and small business banking.