Building vs Buying a Billing System

Editor’s note: this article is written for scaling startups but in truth, anyone needing to build out their billing processes can take a great deal from the lessons in this article. Happy reading!

There’s arguably no better feeling than seeing your seed-stage startup transition into a high-growth series A or B scaleup. It’s easy to get lost in the excitement of it all: rave customer reviews, ambitious goals, and increased attention from potential investors. But as great as all this is, the finance and operations teams must keep cool heads. They must be the calm center of the scale-up universe. 

They can’t take their eyes off the ball for a second. While young startups can get away with MacGyvered, “it’s fine for now” processes, ambitious scaleups need to create an infrastructure that’ll help their burgeoning business become true world-beaters. Cashflow is king, and needs to be an absolute priority, especially in 2023. 

Consider your billing process, for example. Many startups adopt just-good-enough billing systems that work well enough when starting out. The issue is, they can’t support rapid expansion into different markets and business models without causing a massive headache.

So, you have a dilemma: build a new solution internally or buy a ready-to-go solution from a tech vendor? For many of you reading this, perhaps you have even started duct-taping together an accounts receivables process, or tried to launch a new business model, and are now a bit stuck. This is for you. 

This blog will examine the pros and cons of each approach before concluding which option we think is a better bet.

Building a billing system internally

Buoyed by their company’s initial success, go-getter founders might be tempted to build their own billing system. This approach certainly has its upsides—but there are also multiple disadvantages to consider. It’s your job to explain these considerations to your team, providing a roadmap based on more than just “we’re building the airplane on the way down!”-type sentiments. A good business, spontaneously solutioning does not make.

The advantages of building a billing system for startups

Building billing systems internally allows your team to design a system perfectly customized to your company’s requirements. You have complete control over all functionalities—everything will be tailored according to your company’s goals, pain points, overarching strategy, and your customers’ specific billing requirements.

Development responsibility is entirely internal. If you want to expand the billing system’s capabilities, you don’t have to rely on the support of an external third party. Your developers can build a solution that integrates seamlessly into your existing tech landscape while meeting all industry-specific regulatory requirements.

What’s not to love?

If you’re building, make sure you’re ready with these three steps

While we do not recommend it, before you charge ahead and begin the process, you must first ensure your company is ready to tackle such an ambitious project. If you’re going to go for it, do it right. Follow these three steps to get your team organized and pave the way for a successful project.

1.     Create a requirements document

Collaborate across all departments to create a requirements document, which will help guide the building process. This should consider:

• How many customers do you anticipate you’ll have in the medium and long term?
• Which prices/rates/business models will the system handle?
• Do you need to build contract design capabilities (e.g. one-time purchase/subscription models)?
• Which integrations will be required (ERP, CRM, etc.)?
• Will automated pricing be necessary (e.g. do you need to integrate with a CPQ)?
• Which languages and currencies do you need to consider?
• Which compliance requirements (country-specific) have to be considered? Which invoice templates or country-specific e-invoicing requirements?

2.     Identify the necessary expertise and resources

Your requirements document will help you lay out which internal expertise and resources you need to bring the project successfully to fruition. However, it’s also worth mulling over the following questions:

• Do you need to create a dedicated internal team solely focused on this project?
• Are in-house development and IT operations teams available?
• Do you need to bring in external developers or experts?
• Which additional expertise will you require?
• Are there any supplementary skills you currently lack (e.g. know-how of billing systems)?

3.     List any additional considerations

Finally, review any supplementary considerations that will shape the development process. These should encompass the following areas:

Products/services

Determine whether you need your system to handle the following billing approaches:

• • One-time sales
  • Subscription sales
  • Usage-based billing
  • Hybrid pricing and sales models
  • Variable pricing (depending on the time, day, month, year, country, region, status, etc.)

Functionality

Your customized solution should be adaptable. Don’t design rigid billing software that only works for your current needs. Instead, create a flexible solution that can adapt on the go. Remember: you’ll need to build out these new functionalities on your own moving forward.

Technical know-how

List the technical capabilities you’ll require and where you’ll source these from. These might include an expert team of developers and revenue management specialists. Then, determine whether you already have the internal capabilities or if you’ll need to source them externally.

Operations, monitoring, and support

Work out how to guarantee long-term cooperation and collaboration from your team. These types of projects always run into unexpected hurdles, so you must ensure you have buy-in from the top before you begin. It helps if you can precisely outline which resources you’ll require and have a plan to acquire them. Plus, you should also consider how you’ll train users once you’re ready to implement the solution.

The disadvantages of building billing software for growing startups

Despite the potential benefits, there are some notable disadvantages to building billing systems internally. The development time can take anywhere from several months to a couple of years, meaning the solution won’t be ready to use for a while yet. 

As we have shown above in the three steps, these projects also require tremendous amounts of planning to cover all necessary requirements. This is incredibly time- and resource-intensive across multiple departments. Despite this, there still remains a high risk that you’ll accidentally overlook an important requirement. Not even startup founders are perfect, despite what they think. 

Additionally, the IT department will be placed under an intense burden throughout this development project, hindering their ability to assist with other matters, like actually building your software. What’s more, at some stage of the process, you’ll likely have to also source expensive (but critical) expertise externally to get the project over the line. This doesn’t just include developers—you might also need compliance specialists, for example. Auditors may even say after you’ve built a solution that it isn’t compliant even though you tried. So there’s extra cost risk there, too.

Because most scaleups lack the necessary accounts receivable know-how, they run the major risk of costs exceeding the initial budget.

Scaleups who build their own billing solutions must account for an eye-watering array of costs: designing, building, and maintaining the software; hosting (database and servers); backups; the time involved during data migrations; testing and verification, deployment/training, compliance, maintenance/operation/monitoring/audits, and updates/new developments.