Subscription payment processing: Best tools & practices

Subscription payment processing is the engine behind recurring revenue models, allowing businesses to automate payments and build predictable income streams. This tool is vital for SaaS businesses that rely on recurring subscriptions to drive growth and user retention.

In this post, we'll explore the key components of subscription payment processing, how it works, and the best tools and practices for optimizing your billing system.

Read on to learn:

• How subscription payment processing works
• The top subscription payment gateways
• Best practices for successful subscription management
• Answers to frequently asked questions about subscription billing

Let’s begin by explaining what subscription payment processing means in more detail.

What is subscription payment processing?

Subscription payment processing refers to the systems and methods that manage recurring payments for subscription-based services. Think of it as the tech behind those "set it and forget it" payments you make each month for your favorite streaming services, online fitness memberships, or software tools.

Subscription payment processing enables automated recurring billing by securely storing customer payment information and automatically charging them at predetermined intervals (weekly, monthly, or whatever frequency makes sense for your business).

This approach eliminates the need for manual invoicing and payment reminders, freeing up your team and creating a better experience for your customers.

Key components of subscription payment processing

To break it down further, let's take a closer look at the key components that make this all possible:

• Payment gateways: Think of a payment gateway as the bridge between your business and the financial world. It securely captures and transmits customer payment information to the appropriate banks or card networks for authorization and processing. Popular gateways include Stripe, Braintree, and Chargebee.
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• Subscription management system: A subscription management system is like your business's control center for recurring payments. It automates the entire billing cycle, from generating invoices and processing payments to managing upgrades, downgrades, and cancellations.
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• Billing automation: This capability takes the heavy lifting out of recurring billing. It automatically generates and sends invoices, processes payments, and updates customer records. This reduces errors, saves time, and ensures timely payments.
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• Fraud prevention: Protecting your business and your customers from fraud is essential. Subscription payment processing solutions often include tools to detect and prevent fraudulent transactions, such as address verification, card security codes, and risk scoring.
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• Secure customer data storage: Maintaining PCI DSS compliance is non-negotiable. Your subscription payment processing system should prioritize the secure storage of sensitive customer data, using tokenization and encryption to protect it from unauthorized access.
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• Dunning management: Even with the best systems, occasional payment failures happen. Dunning management helps you recover those failed payments by automatically sending personalized reminders and retrying payments.

Payment gateway vs. Payment processor: What's the difference?

While the terms are often used interchangeably, there's a key difference between a payment gateway and a payment processor. The payment gateway is a secure portal that captures and transmits customer payment data.

The payment processor is the behind-the-scenes engine that actually moves the money from the customer's account to yours.

In simpler terms, the payment gateway is like the cashier who takes your credit card at the store, while the payment processor is the bank that approves the transaction and transfers the funds.

How subscription payment processing works in 7 steps

Subscription payment processing might seem like magic, but it's really a carefully orchestrated process that involves several key steps. Let's break it down and see how it all works, from the moment a customer signs up to when the funds hit your account.

A step-by-step breakdown of how payments are processed

1. Customer sign-up and payment method entry: The process begins when a customer decides to subscribe to your service. They provide their payment data, which could be credit card details, bank account info, or access to a digital wallet. This information is securely collected and stored, often using tokenization to protect sensitive data.
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2. Payment authorization: Next, the payment method is authorized to ensure it's valid and has sufficient funds. This step involves communication between your subscription payment gateway, the payment processor, and the customer's bank or card provider.
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3. Recurring billing setup: Once the payment method is authorized, the recurring billing schedule is established. This includes the billing frequency (e.g., monthly, quarterly), the subscription plan details (e.g., pricing tier, features), and any applicable trial periods or discounts.
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4. Funds transfer and payment processing: At the start of each billing cycle, the automated recurring billing system initiates a payment request. The secure payment gateway securely transmits the request to the payment processor, which facilitates the transfer of funds from the customer's account to your business account.
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5. Invoice generation and customer notifications: After each successful payment, an invoice is automatically generated and sent to the customer. Automated email notifications may also be sent to confirm payment and provide a summary of the transaction.
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6. Handling failed payments (dunning, retry mechanisms): Even with the best systems, payments can fail. This could be due to insufficient funds, an expired card, or other issues. Dunning management comes into play here, automatically sending personalized reminders to customers and retrying payments according to a predefined schedule.
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7. Subscription management: Beyond just processing payments, subscription payment processing also handles changes to subscriptions. This includes upgrades, downgrades, cancellations, and account updates. The system automatically adjusts billing and notifications based on these changes.

7 Elements to look for in a subscription payment processor

Choosing the right subscription payment processor can make or break your business. It's the backbone of your recurring revenue stream, so you need a solution that's reliable, secure, and scalable.

But with so many options available, how do you know which one is right for you? Here are seven key elements to consider.

1. Scalability and flexibility

Your subscription payment processor should be able to grow and evolve alongside your business. Look for a solution that offers a wide range of flexible billing models, whether you need monthly, annual, usage-based, or a hybrid approach. Let’s zoom in closer:

• Recurring billing: This is the most common model, where customers are charged automatically at regular intervals.
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• Usage-based billing: Customers are charged based on their consumption of a product or service. This model is often used for utilities or telecommunications services.
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• Tiered pricing: Customers can choose from different pricing tiers based on their needs and budget. It’s a popular model with SaaS businesses and membership sites.
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• Hybrid billing: The model combines elements of different billing models to create a customized solution for your business.

In addition to flexible billing models, the ability to customize pricing structures with free trials, discounts, and metered billing is also important. This advantage allows you to tailor your offerings to different customer segments and create targeted promotions.

Finally, simple integration with your existing SaaS platforms is vital for simplified operations. Direct connections with your CRM, accounting, and analytics tools will automate workflows and save you valuable time.

2. Multiple payment methods for customer convenience

The more payment options you offer, the easier it is for customers to pay you. This can lead to higher conversion rates, reduced churn, and a better overall customer experience. Your subscription payment processor should support a variety of payment methods, including:

• Credit and debit cards: Visa, Mastercard, Amex, Discover, etc.
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• ACH bank transfers: These are often cheaper than card transactions and can be a good option for recurring payments.
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• Digital wallets: Apple Pay, Google Pay, PayPal, and other digital wallets offer a fast and convenient checkout experience.
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• Buy now, pay later (BNPL) options: BNPL services like Klarna and Affirm allow customers to spread out their payments over time, which can increase affordability and boost sales.

By offering a diverse range of payment methods, you cater to a wider audience and remove potential barriers to purchase.

3. Global currency & tax compliance

If you have customers around the world, or plan to expand internationally, your subscription payment processor should be equipped to handle multi-currency transactions. Customers can pay in their local currency, which can improve conversion rates and reduce confusion.

Automatic tax calculations are also crucial for maintaining compliance with global and regional tax regulations. Your processor should support VAT, GST, and sales tax compliance, and automatically calculate and collect the correct amount of tax for each transaction.

Let’s explain each a bit more:

• VAT (value added tax): A consumption tax added to goods and services at each stage of production and distribution.
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• GST (goods and services tax): A tax on the supply of goods and services.
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• Sales tax: A tax on retail sales, usually calculated as a percentage of the purchase price.

In addition to tax compliance, your processor should also adhere to relevant financial regulations,such as:

• PCI-DSS (payment card industry data security standard): The highest standard of payment security for protecting card data.
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• PSD2 (payment services directive 2): A European regulation that enhances payment security and promotes innovation.
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• GDPR (General data protection regulation): A complete data privacy regulation that protects the personal information of European Union residents.

Remember: By choosing a processor that prioritizes global compliance, you can minimize risks and focus on growing your business internationally.

4. Fraud prevention and security

Recurring transactions come with inherent fraud risks, especially when storing payment credentials. Your subscription payment gateway should have robust security measures in place to protect your business and your customers. Look for features like:

• PCI-DSS Level 1 compliance: As stated before, this is the highest standard of payment security, ensuring that your processor meets stringent requirements for handling card data.
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• AI-powered fraud detection: Advanced fraud detection systems use machine learning to identify and block suspicious transactions before they occur.
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• Strong chargeback protection: In the event of a chargeback, your processor should provide tools and support to help you dispute fraudulent claims and recover revenue.
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• Tokenization & encryption: Tokenization replaces sensitive card data with unique tokens, while encryption scrambles data to make it unreadable to unauthorized parties. These technologies help protect customer data and reduce your PCI compliance burden.

By choosing a processor that prioritizes security, you can minimize fraud risks and build trust with your customers.

5. Frictionless and automated recurring billing

Manual billing processes are inefficient and error-prone. Your subscription payment processor should automate recurring billing to save you time and reduce headaches. Look for features like:

• Automated invoice generation: Invoices should be automatically generated and sent to customers for every billing cycle.
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• Smart dunning management: Automated dunning management systems retry failed payments and send personalized reminders to customers, helping you recover revenue and reduce involuntary churn.
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• Built-in notifications: Automated notifications can remind customers of upcoming renewals, expiring cards, and other important account information.

By automating recurring billing, you can free up your team to focus on more strategic tasks and provide a better customer experience.

6. Developer-friendly API & no-code integrations

For those who prefer a no-code approach, look for pre-built integrations with popular SaaS tools like HubSpot, QuickBooks, and Zapier. These integrations allow you to connect your payment processor with other critical business systems without writing any code.

If you need more customization or have complex workflows, RESTful APIs are essential. APIs allow you to programmatically interact with your payment processor, enabling deep platform integrations and custom automation.

Webhooks and SDKs can further enhance your setup, allowing you to automate payment events in real time and build custom applications. Choosing a processor with flexible integration options means you can tailor your payment processing to your specific business needs.

7. Transparent pricing with no hidden fees

Many payment processors advertise low rates but then charge extra for features like cross-border transactions, API access, and fraud prevention tools. These hidden fees can significantly impact your costs, so transparency is key.

Before committing to a processor, carefully review their pricing structure and ask about any potential hidden fees. Look for a processor that offers clear and upfront pricing that aligns with your budget and business needs.

Remember, the cheapest option isn't always the best. Consider the value you're getting for your money and choose a processor that offers a balance of affordability and functionality.

*Please note: The prices shown for each of these payment processing platforms were current at the time of publishing. For the latest pricing details, visit their respective websites.

The 6 best subscription payment processing platforms

Below is a breakdown of the top six subscription payment processing platforms, each with unique capabilities to support various business needs. Let’s get started with Orb:

1. Orb

Orb is a modern usage-based pricing and billing platform system designed for SaaS and GenAI companies that require high accuracy, flexible pricing models, and minimal engineering overhead.

Unlike traditional billing systems that lock businesses into rigid structures, Orb decouples pricing from product usage, allowing companies to iterate on monetization strategies effortlessly. With real-time usage tracking, SQL-powered pricing logic, and automated revenue operations, Orb delivers precision billing without missing a single event.

Features:

• Orb RevGraph: A real-time event ingestion and pricing engine that captures all usage data at a granular level, ensuring no revenue is lost due to data gaps or errors.
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• Orb SQL Editor: Empowers finance and revenue teams to define complex pricing models using SQL queries and a visual builder, eliminating the need for engineering involvement.
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• Automated invoicing & revenue recognition: Manages multi-line item invoices, prorations, discounts, and tax calculations while guaranteeing compliance with ASC 606 and IFRS 15 standards.
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• Progressive pricing rollouts & custom contracts: Enables testing of new pricing strategies with select customer segments and supports enterprise contract customization.
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• Seamless data & financial integration options: Integrates with data warehouses (e.g., Snowflake, BigQuery), CRMs (e.g., Salesforce), and financial tools (e.g., QuickBooks, NetSuite) to maintain a unified billing workflow.

Ideal users

Orb is best suited for SaaS and GenAI companies that need a scalable and highly accurate billing system. It is particularly beneficial for finance teams that require detailed audit trails, product teams experimenting with pricing, and engineering teams that want to minimize billing-related maintenance.

Pricing

Orb provides custom pricing based on the complexity of the business’s billing needs. Companies must request a quote to determine their cost.

Bottom line

Orb provides the most advanced solution for businesses that require real-time pricing flexibility, error-free billing, and seamless financial integrations. Unlike other platforms, Orb enables companies to deploy dynamic monetization strategies with minimal engineering involvement.

2. Stripe

Stripe is a widely used payment processing platform with a basic subscription billing module. The thing is that while powerful for standard recurring payments, it lacks built-in tools for handling complex pricing logic. But let’s look more at their features first.

Features:

• Recurring payments engine: Supports fixed recurring billing but lacks dynamic pricing capabilities.
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• Adaptive transaction routing: Optimizes payment processing across multiple banks to reduce declines.
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• Built-in tax handling: Automates VAT and sales tax calculations but requires additional configuration for global tax compliance.
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• Limited pricing flexibility: Allows simple tiered pricing but does not support complex hybrid or usage-based models.
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• Developer-first approach: Offers extensive APIs but requires engineering resources for customization.

Ideal users

Stripe is ideal for startups and SMBs with straightforward subscription needs, particularly those with strong developer teams that can build on its API capabilities.

Pricing

Stripe charges 2.9% + $0.30 per transaction. International payments and currency conversion incur additional fees.

Bottom line

While excellent for businesses needing simple subscription billing and payment processing, Stripe lacks the sophistication required for complex pricing and enterprise-scale billing workflows. Plus, Stripe has other limitations for usage-based billing.

3. Chargebee

Chargebee is a subscription management platform that automates invoicing, revenue recognition, and customer retention workflows.

Features:

• Automated invoicing & billing cycles: Manages renewals, upgrades, downgrades, and cancellations with minimal manual intervention.
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• Custom subscription plans: Offers fixed, tiered, and volume-based pricing but lacks event-driven billing adjustments.
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• Dunning and churn management: Implements intelligent retry strategies and personalized outreach to recover failed payments.
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• Multi-currency support & tax compliance: Handles global taxation but may require third-party integrations for regional tax calculations.
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• Analytics & subscription insights: Tracks MRR, churn, and LTV, though data customization is somewhat limited.

Ideal users

Chargebee is well-suited for mid-market SaaS companies looking for automated subscription billing and churn reduction but may not be ideal for those requiring highly dynamic usage-based pricing.

Pricing

Starts at $599 per month for businesses with up to $100,000 in monthly billing. The enterprise plan’s pricing is only available through a direct quote.

Bottom line

While this service simplifies subscription management, it lacks advanced customization for real-time usage-based pricing, as we covered before in a summary of Chargebee reviews.

4. Recurly

Recurly provides subscription billing and revenue optimization, with a focus on churn reduction and payment recovery.

Features:

• Machine learning-based churn prevention: Adjusts retry logic dynamically to recover failed payments.
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• Basic usage-based billing: Supports metered billing but lacks granular, real-time event ingestion.
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• Multi-gateway transaction processing: Works with multiple payment processors to optimize transaction approvals.
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• Subscription plan customization: Allows for custom pricing tiers but has limited hybrid pricing flexibility.
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• Audit-ready revenue recognition: Automates compliance reporting for ASC 606 but lacks deep financial data exports.

Ideal users

Recurly is a good fit for digital content providers and SaaS businesses that prioritize churn management over complex billing configurations.

Pricing

The Starter plan is free for startups and SMBs. Do keep in mind that the starter plan is free just for the first three months and after that, it’s around $230 per month.The Professional and Elite plans require custom pricing.

Bottom line

Recurly is strong for churn reduction but lacks robust pricing capabilities for businesses needing extensive billing customization. For example, usage-based billing with Recurly can be difficult.

5. Zuora

Zuora is an enterprise-grade subscription management platform designed for large-scale businesses with complex billing needs.

Features:

• Flexible pricing & subscription models: Supports volume-based, tiered, and hybrid pricing, though setup requires manual intervention.
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• Enterprise-level tax & compliance management: Manages global VAT, sales tax, and regulatory reporting but can be complex to configure.
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• Advanced contract-based billing: Supports prorations, mid-cycle plan changes, and multi-year agreements.
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• Usage-based billing engine: Processes large-scale usage data but lacks a native SQL-driven customization layer.
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• ERP & CRM integrations: Syncs with financial and customer management systems but often requires significant implementation resources.

Ideal users

Zuora is best suited for large enterprises needing extensive pricing flexibility and regulatory compliance but requires dedicated billing teams for configuration.

Pricing

Zuora’s pricing can only be consulted through a custom quote.

Bottom line

Zuora is powerful for global enterprises with complex billing needs, but its complexity and cost make it less suitable for mid-sized businesses.

6. Maxio

Maxio is a subscription billing and financial operations platform built for B2B SaaS companies that require extensive revenue analytics.

Features:

• Hybrid pricing model support: Handles fixed, tiered, and custom pricing but lacks SQL-driven customization for event-based pricing.
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• Compliance-driven revenue recognition: Automates GAAP and IFRS-15 reporting with detailed revenue attribution.
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• Financial analytics & forecasting: Provides real-time dashboards with key performance indicators and revenue trends.
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• Seamless integrations with financial systems: Connects with QuickBooks, NetSuite, and Salesforce to streamline reporting and reconciliation.
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• Custom billing automation: Supports complex invoicing structures but lacks real-time adjustments for dynamic pricing models.

Ideal users

Maxio is ideal for B2B SaaS companies looking for in-depth financial analytics and revenue operations automation, though it may not be the best fit for those needing real-time usage-based billing adjustments.

Pricing

The Grow plan starts at $599 per month, with enterprise pricing available upon request.

Bottom line

Maxio provides strong financial automation tools but lacks the agility required for modern usage-based SaaS billing.

​​FAQs

How do I reduce churn caused by payment failures?

To reduce churn caused by payment failures, implement automated retry mechanisms, proactive customer notifications, and offer multiple payment methods to address issues promptly

What security measures should I consider for subscription payments?

Guarantee subscription payment security by using robust fraud detection algorithms, adhering to PCI DSS compliance standards, and maintaining secure data storage practices.

Are there any hidden fees with subscription payment gateways?

Some subscription payment gateways may have hidden fees, such as charges for international transactions, currency conversions, or additional services; it's essential to review the fee structure carefully before selection.

What’s the best way to calculate subscription pricing?

Calculating subscription pricing effectively involves analyzing market trends, understanding customer value perception, and considering costs to balance competitiveness with profitability.

Unlock the future of subscription billing with Orb

We've explored the ins and outs of subscription payment processing, from how it works to the key features to look for in a provider. But there's a reason why we're focusing on more than just the basics.

Traditional subscription management tools can be rigid and limiting, especially for SaaS businesses with ambitious growth goals.

That's where Orbcomes in.

Orb is a billing platform built for modern SaaS and GenAI companies. It's not just about processing recurring payments; it's about unlocking your usage data to drive growth and create a truly dynamic monetization engine.

Here's how Orb empowers you to go beyond basic subscription management:

• Unlock pricing agility: Orb's Rev Graph architecture separates usage data from pricing metrics, giving you the freedom to experiment with pricing models and adapt to change without limitations.
  
  Launch new pricing structures without engineering effort, test changes using historical data, and support all modern pricing models (usage, subscription, hybrid) with ease.
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• Provide billing accuracy: Orb's RevGraph processes all raw event data, guaranteeing accurate, error-free billing. So long to revenue leakage and billing inaccuracies that erode customer trust. With Orb, you get a complete audit trail for every calculation, real-time usage monitoring, and alignment between product usage and billing.
• Scale with confidence: Orb's modular platform is built for scale. Harness high-scale data ingestion with the Orb API, query it seamlessly with the Orb SQL Editor, and leverage functions like Orb Billing, Orb Invoicing, and Orb Reporting — all built on top of your usage data.
  
  Orb integrates with your existing financial stack and provides built-in revenue analytics to support data-driven decisions.
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• Benefit from expert guidance: Orb is more than just a software provider; it's a trusted partner. As a thought leader in usage-based pricing, Orb provides dedicated implementation support, industry expertise, and ongoing optimization to help you navigate the complexities of modern billing.

Ready to move beyond basic subscription management and unlock the growth potential of your SaaS company? Explore Orb's flexible pricing options to find the perfect plan for your business.