Subscription Billing Intro
Subscriptions allow businesses to automate the billing for customers on a recurring basis. With subscription billing on Invoiced, you can charge customers automatically each billing cycle, or issue an invoice that can be paid with payment methods accepted on the account.
If you find yourself sending the same invoices each month, then subscription billing is the solution. Not only will subscription billing save you time, but your customers will likely appreciate the predictability and convenience of subscriptions.
Invoiced has designed a subscription billing system to offer power and flexibility, while remaining simple to understand and to use. There are a few key concepts you might want to become familiar with before starting:
A plan describes how much and how frequently your customer will be billed. An example plan might be website hosting that is $100 per month. Plans are reusable templates for building subscriptions. You can set up and manage your plans in Settings → Plans.
Plans can have one of four pricing modes
1. Custom - Set a custom unit cost on each subscription. 2. Per Unit - The unit cost will be the same for each subscription. 3. Tiered - Set the unit cost based on the subscription quantity. The total subscription quantity is separated into each tier on the subscription in a "waterfall."
4. Volume - Set the unit cost based on the subscription quantity. The total subscription quantity will have the same unit cost.
A subscription bills a customer for a fixed amount on a systematic basis, according to the plan the customer is subscribed to. Subscription pricing is flexible on Invoiced and allows for quantities, addons, discounts, and taxes to be combined. Subscriptions also support many options to customize the billing intervals.
Although we use traditional defaults, we also support many advanced subscription billing features that you might want to become familiar with.
Subscriptions support a free trial period at the beginning of the subscription where the customer is not charged. For example, a subscription might have a 30-day trial period where the customer is given service for free until the first bill is issued. After the trial period, the customers subscription will begin to bill.
The billing date is the date when the next invoice for the subscription is generated. When you create a subscription, you can choose between anniversary or calendar billing and issuing invoices in advance or arrears. It’s not possible to change these selections after the subscription is created.
Invoices issued in advance are created before or at the start of the billing period. Invoices issued in arrears are issued at the end of the billing period.
As stated in the billing date section, Anniversary Billing renews a subscription on the anniversary of the start date. For example, if your customer purchased a monthly subscription on the 9th then they would be billed each month on the 9th. In Invoiced, subscriptions use anniversary billing by default.
Another option to Anniversary Billing is *Calendar Billing, which renews subscriptions on a specific day of the month chosen, instead of the start date. Calendar billing also has the ability, on the first invoice, to prorate partial months.
For example, let's consider a scenario where your customer purchased a monthly subscription on the 9th with calendar billing set to the 1st of the month. The first bill would be prorated for the time remaining until the next 1st of the month. Future bills will be generated on the 1st of the month for the full amount.
Each subscription keeps track of the current billing period. The billing period represents the time frame that the subscription will cover. The length of the billing period always matches the plan interval. By default, the billing period will be the interval following the billing date. If a monthly subscription renewed on December 1 then the current billing period would be December 1 - December 31.
Subscriptions can be infinite or fixed duration. An infinite subscription (the default) runs forever until the customer cancels. A finite subscription will run for a fixed number of billing cycles.
The subscription quantity acts as a multiplier to the base plan price. If your subscription is based on a per-user subscription (i.e. $30/user/month) then the quantity would represent the number of users the customer should be billed for each month.
Subscription addons are meant to give you pricing flexibility on top of the base plan amount. Addons save you from creating a large number of plans for every possible combination of products/services that a customer could subscribe to. An addon is an additional plan added onto a subscription, in addition to the primary plan. Each addon is billed as a separate line item on the generated invoices.
You can setup and manage your plans in Settings → Plans.
A subscription will generate an invoice each billing cycle for the amount owed in that billing cycle. The invoice contains line items for the plan and any addons.
Since subscriptions are a generate invoice monthly, that means AutoPay customers are fully supported with subscription billing. AutoPay will automatically charge your customer's payment method for any invoices issued against their account, including subscription invoices.
If a customer with AutoPay enabled is subscribed to a plan, but does not have payment information on file yet, then we will send them the first invoice automatically. Upon paying the invoice, we will capture the customer's payment information for use on future invoices.
When AutoPay is not enabled, then the customer will receive an invoice each billing period that they can pay using any of the payment methods you accept.
Payment terms succinctly tell the customer when an invoice is due. For example, NET 7 means that payment is due within 7 days of the invoice whereas NET 30 means payment is due in 30 days.
You can read more about the different kinds of payment terms in this blog post.
Pending line items are one-time charges that you can add to an upcoming subscription invoice. To create a pending line item, navigate to the customer profile and select "add line" on the upcoming invoice. These items will be included when the next subscription invoice is automatically generated.
If taxes are calculated automatically for your invoices, make sure you do not add tax to the pending line item. This will produce an error. You can tax the entire invoice or individual line items, but not both. If you run into this error, you can disable taxes in the customer profile or delete the pending line item to resolve it.
Invoiced supports prorations on subscriptions when changing a plan, quantity, or addons mid- billing cycle. When a customer downgrades, they will receive a credit, and when they upgrade will be charged.
Prorations are calculated any time a subscription is changed, unless disabled. A proration will generate a credit for the time remaining on the current billing cycle before the subscription update and a charge for the time remaining with the subscription update. If the proration is negative (downgrade) then we will issue the customer a credit. If positive (upgrade) then will add the amount to the next subscription invoice.
When switching to a plan with a different billing cycle, for example, switching from monthly to annual billing, then a new billing cycle will be started at the time of pro-ration. This means an invoice will be generated for the next billing cycle on the plan.
Prorations are calculated based on the number of seconds left in the billing cycle. Here is the formula we use to calculate prorations.
The % time remaining is calculated with:
seconds left in period / total seconds in period
Then a proration credit line item is computed using this formula:
% time remaining * subscription price before change
And a proration charge line item is computed using this formula:
% time remaining * subscription price after change
Invoiced can send these emails with subscriptions:
- Sign up confirmation
- Renews Soon
- New invoice
You can learn more about these emails in the Emails Guide.
Subscription invoices are issued within one minute of the billing period timestamp. It's not possible to generate a subscription invoice before the renewal date.