How do SaaS companies manage billing and subscriptions?

SaaS companies manage billing and subscriptions through a combination of third-party platforms, custom code, and automated workflows. The core process involves tracking customer usage or subscription tiers, calculating charges, processing payments, and handling lifecycle events like upgrades, cancellations, or renewals. Most companies rely on specialized billing systems like Stripe, Recurly, or Chargebee to avoid reinventing complex payment logic, tax calculations, and compliance requirements. Developers integrate these platforms via APIs to automate recurring billing, invoice generation, and payment failure handling while maintaining a secure audit trail.

A typical implementation starts with defining subscription plans (e.g., monthly/annual pricing, seat-based tiers) in the billing platform’s dashboard. When a user signs up, the application creates a customer record in the billing system and attaches a payment method. For usage-based billing (e.g., API calls or storage), developers send meter events via API to track consumption. The billing system aggregates this data and applies tiered pricing rules. For example, a cloud storage SaaS might use Stripe Billing with their custom metering service to charge $0.10 per GB after the first 100GB. Failed payments are managed through automated dunning workflows—systems like Recurly retry payments, send email reminders, and escalate to subscription pauses if unresolved.

Developers must also handle subscription lifecycle hooks. When a user upgrades mid-cycle, platforms like Chargebee prorate charges by calculating the unused portion of the current plan and applying it as a credit. Tax compliance is delegated to services like TaxJar or Avalara, which integrate with billing platforms to automatically apply regional VAT or sales tax. For reporting, teams often sync billing data to internal databases using webhooks or ETL pipelines. A common pattern involves using Stripe’s webhooks to trigger custom logic—like disabling service access when a subscription lapses—while keeping local records in sync. Security-wise, teams avoid storing payment details by relying on PCI-compliant tokens from payment gateways. Testing is done in sandbox environments with mock cards to simulate edge cases like chargebacks or partial refunds without moving real money.