The difference between rating vs billing is one of those things that everyone thinks they know but if you ask 10 people for definitions, not too many people will be able to explain the distinction. Let's take a look on what the difference is.
What is Rating?
Rating or "rate columns" are often used in telecommunications industry.
Take for example a cell phone plan - a product that charges you at the end of the month for the usage you consume. Rating is often used for more advanced pricing. For example, international calls to China, Japan, France or South Africa would have different rates compare to your domestic rates.
What is Billing?
Billing is the process of creating an invoice for customers on a recurring basis according to the pricing plan they have selected, their usage during that time period, and any discounts that may apply.
If you’re a subscription based business, your system should provide a rating engine that can calculate the charges based upon usage data over time.
And, in some cases rating calculations may need to be configured if usage pricing varies.
One of the biggest problems with charging based on usage or pay per use business models is that they don’t give you, the business owner, a guarantee of payment. You might be generous and ask for all of your payments to be made on delivery or you could ask for a deposit up front and payment as the work completes.
Either of these options can sound great, but one of the biggest problems is the client. Sometimes you will rely on them to provide certain information or to complete tasks and then the information will simply not materialize; even if they’ve paid a deposit. They might cancel the project and feel they deserve some of the money back – even though you’ve spent a significant amount of time completing part of the work and chasing them for their information.
This can create a customer relations nightmare and a cash flow problem. Without the steady progress of the project, the next installment will be delayed and this could cause you financial worry. However, you can solve these problems using Agile Billing.
Agile Billing Cycles
Instead of wondering whether your business will be able to progress a project as you see fit to secure future funds, ensure there is a periodic payment made regardless of the situation. The regular payments could be based on a weekly, bi-weekly or monthly basis and during each of these periods a specific amount of work is completed.
This is the same sort of strategy as a subscription business model but instead of being for access to software or content – this can be applied to the delivery of unique products.
Agile billing benefits both clients and your business. With the fixed cost spread over the long term, the cost of the project or product won’t seem too expensive. Instead it will look highly reasonable – which will increase the number of sales you’ll make and the positive feeling about your product that customers have.
At the same time, because the periods are pre-programmed into a payment scheme you are guaranteed the income for the period making management of your cash flow easier. It also allows you to better assign your resources and therefore be more efficient, limiting your business waste.
For your client, when a regular payment and agreement is in place, they can be sure they have access to you for a certain amount of time during a specific period. This guarantee can be crucial in your customer relationship and allows you to plan your workload better – limiting the stress in your work life and preventing last minute marathons.
What If They Cancel?
There may be times when the client will still want to cancel. This should be expected, but agile billing does account for this. If they cancel just before the next payment date, then they keep the project up to that point, don’t pay any money but can’t expect the project to be taken any further.
If they cancel during the middle of a billing period, you could offer a certain amount back on that payment period. For instance, considering a weekly period, if they cancel with 4 days notice, return 50% of the period payment, for 2 days, return 25% of the period’s payment. At no point should the entire project cost be refunded as you have completed work and they should respect that.
Agile business billing is one of the best ways you can guarantee your income and increase the confidence that your customers will have in your business. In many ways it is similar to how subscription businesses work; however, agile billing is often used for short term contracts or one off projects.
To start agile billing you need to determine how much you will charge per period, how long the periods will be and what needs to be delivered within each period. With this system in place you can expect to have a better quality of working life, customer relationships and an easier to manager cash flow system. For additional information, also read how IoT opens gates to new recurring billing and usage-based pricing opportunities.
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