Payments in SaaS: billing, taxes, and retention. 6 chapters and a final quiz.

Chapter 1. Self-serve or sales-led: two payment worlds.

A SaaS company sells recurring access to software, and how it sells determines how it gets paid. In self-serve, users sign up on their own from the website, and payment by card, wallet, or SEPA direct debit is built into the flow. Checkout friction is a conversion issue, just as in e-commerce. In sales-led, a sales rep negotiates an annual contract, so payment runs through a quote, a purchase order, and an invoice paid by bank transfer on 30- or 60-day terms. The issue becomes collections, not checkout.

Chapter 2. The billing engine: the core of the stack.

The billing engine orchestrates everything between a list price and cash collected: the plan catalog, subscription cycles, trials, proration on plan changes, usage-based billing, invoice generation, payment attempts, and dunning. It alone holds the truth about recurring revenue; the PSP sees only transactions. Building one in-house is a classic trap, because the edge cases run into the hundreds, from an upgrade in the middle of an annual cycle paid by bank transfer to partial credit notes and currency changes.

{
  "subscription_id": "sub_91k2",
  "customer": "cus_ab12",
  "plan": { "id": "business-monthly", "amount": 9900, "currency": "eur", "interval": "month" },
  "status": "active",
  "current_period_end": "2026-08-11",
  "collection_method": "charge_automatically",
  "default_payment_method": "pm_card_visa_4242",
  "proration_behavior": "create_prorations",
  "trial_end": null,
  "tax": { "provider": "stripe_tax", "customer_tax_id": "FR12345678901" }
}

Chapter 3. Free trials, freemium, and paid conversion.

SaaS users want to try before they pay. How you design that phase (time-limited trial, permanent freemium, card required or not) is as much a payment decision as a product one. It determines who reaches checkout and with what level of intent, and it affects how many first transactions will fail or be disputed.

Chapter 4. OSS VAT, US sales tax, and merchants of record.

A SaaS company sells an electronically supplied service. Since 2015, VAT on European B2C sales of such services has been due in the customer’s country, at the local rate. Rather than registering in every member state, the vendor uses the OSS one-stop shop (generalized on July 1, 2021). It files a single quarterly return in its home country, which distributes the VAT collected to the other states. Below €10,000 in annual cross-border B2C sales within the EU, it can keep charging its own country’s rate.

• Intra-EU B2C: VAT at the consumer’s country rate (e.g., 20% in France, 19% in Germany, 21% in Spain), filed through the OSS. Displayed prices must be localized and tax-inclusive.
• Intra-EU B2B: reverse charge, with an invoice excluding VAT if the customer provides a valid EU VAT number, checked through the VIES system; the invoice must carry the mandatory reverse-charge statement.
• Customers outside the EU: generally outside the scope of EU VAT, but local obligations kick in above certain thresholds (Swiss or UK VAT, Australian or Canadian GST, etc.).
• Proof of location: the seller must collect consistent evidence (billing address, card or IBAN country, IP address) to justify the rate applied.

The US has no VAT, but sales tax set state by state, and sometimes city by city. Since South Dakota v. Wayfair (2018), a foreign seller can owe tax once it crosses an economic nexus threshold, typically $100,000 in sales or 200 transactions a year in the state. SaaS treatment varies: taxable in some states (New York, Texas, Washington...) and exempt in others (California, as a general rule). Tracking this manually is unrealistic, so vendors rely on tax engines (Stripe Tax, Avalara, Anrok) or hand everything to a merchant of record.

Chapter 5. Dunning: recovering involuntary churn.

Many customers who “leave” never decided to leave. Their card failed: it expired, hit its limit, was reissued after fraud, or was declined by the bank. That is involuntary churn. Dunning covers the tools that fight it: new charge attempts (retries), automatic card updates, customer outreach, and grace periods. For a SaaS company with €100,000 in MRR, recovering one point of involuntary churn is worth tens of thousands of euros in ARR. This growth lever often delivers the best ROI in the entire company.

• Account updater: Visa and Mastercard provide the new numbers and expiration dates of reissued cards; enabled at the PSP, it prevents the failure before it happens.
• Network tokens: the network token follows the card through reissues and delivers higher authorization rates than a stored PAN. It is a standard to turn on for any recurring revenue.
• Pre-dunning: an email before the saved card expires and before the annual renewal, which means fewer failures and fewer “I didn’t know” chargebacks.
• Multichannel outreach: email, in-app, and text messages for expensive plans; the update link must work without a full login (signed link).
• Decline codes: never retry a “hard” decline (fraud, closed account), because the networks penalize excessive retries (fees and a lower authorization rate).

Chapter 6. International expansion, revenue metrics, and embedded payments.

Beyond the home market, payments become a lever for expansion. Showing prices in local currency, accepting local payment methods, and invoicing according to local rules mechanically lift conversion. A SaaS company that accepts only cards in euros turns customers away in the Netherlands (iDEAL) and Germany (direct debit, bank transfer). It also loses them in Brazil (Pix, local cards with installments) and India (UPI, RuPay, with strict rules on recurring debits).

That leaves one last frontier: embedded payments. A vertical SaaS company (POS software for restaurants, salon management, invoicing for tradespeople) can build payment acceptance for its own customers into its product, using PSPs’ platform offerings (Stripe Connect, Adyen for Platforms). It becomes a payments distributor and captures a few dozen basis points on every transaction its users process. For the pioneers, this line outgrows the software: Shopify’s “merchant solutions” (led by payments) made up about 73% of its 2024 revenue, far ahead of subscriptions.