Subscription and usage billing: monthly, annual, metered, and failed payments

A monthly plan is simple: revenue each month. An annual plan paid in advance is not. If a customer pays $1,200 on January 1 for the year, record $1,200 of deferred revenue and recognize $100 each month. By June 30, $600 is revenue and $600 is still deferred.

Mid-term upgrades, downgrades, and cancellations change the schedule. Record each as a separate event with its date, and make sure the revenue schedule for the remaining months is updated.

When customers pay for what they use, revenue depends on a usage count. Reconcile the usage data to the invoice each cycle: units consumed, the rate, and any included allowance. Differences between the metering system and the billing system become revenue leakage or credit memos.

If you bill in arrears, accrue the usage for days that have passed but not been invoiced, so the month reflects what customers used.

A credit memo reduces what a customer owes without deleting the original invoice. A refund returns cash. Keep both visible, with the reason and the invoice they relate to, so you can see how much of billing is later given back.

Card failures happen to a share of subscriptions every month. Billing systems retry on a schedule and send reminders, known as dunning. The receivable stays open while the retries run. Set a rule for when an account is suspended and when the balance is written off, and report on recovery rates.

Give finance visibility on upcoming renewals, price increases, and contract expirations. A renewal calendar showing the customer, date, amount, and notice period helps forecast revenue and cash, and it flags accounts that need attention before they churn.

Each month, compare billings, collections, deferred revenue, and recognized revenue from the billing system with the ledger. They should reconcile. The path from quote to contract to invoice to cash to revenue should be traceable, so any number can be followed to its source document.