Why Building Billing Systems Is So Painful

Summary

Why Building Billing Systems is So Painful@dalexeenko|August 19, 2024 (12m ago)520 views#What is billing Billing might seem like a straightforward concept at first glance. When I talk about billing to friends, most of them bring up their monthly subscriptions, whether it's Netflix, Spotify, ChatGPT or something similar. How hard can it be to engineer a system to support this? After all, all you need to do is to charge a customer a fixed amount each month. You can probably set up a cron job to do that. Done. However, as any seasoned engineer will tell you, the billing space is a deceptively complex beast that becomes exponentially more intricate as your product scales. Let's talk about that complexity. So what is billing exactly? First, let's talk about subscriptions. It's a revenue management model where businesses charge recurring payments for access to products or services. A common example is the good-better-best pricing model used by many SaaS startups. Customers choose a tier (good, better, or best) and pay a flat rate for it. Typically each tier has both monthly and yearly prices. For example, Netflix offers the following 3 tiers: (1) Basic: $7.99/month, (2) Standard: $10.99/month, and (3) Premium: $13.99/month. At Stripe we put together the following diagram to demonstrate the good-better-best approach: Another popular pricing model example is per-seat pricing. In this case the user picks how many seats they plan to use, and the business then charges them based on that amount (another diagram from Stripe): Sounds easy. However, each of these models comes with its own set of challenges. From managing trial periods that need to be billed at a reduced amount or offered for free, to handling upgrades and downgrades that can happen in the middle of the billing cycle, which then prompts the additional complexity of prorated charges or credits. From managing fixed contract periods with financial penalties for early cancellation, to supporting multiple currencies onc...