As a SaaS startup, invoice protocol may be as far from the top of the priority list as it gets. And that's totally understandable especially at the early stages; you just want to get customers signed up, products built, and invoices paid. It doesn't matter too much what the invoice contains so long as it's paid and you've got active customers.
In fact, we see that most early-stage companies completely neglect their invoicing in the beginning — that is, until the customer complaints come flooding in. But interestingly, the reason most founders avoid implementing line-item invoicing isn't because of laziness, or even because of priorities — it's because they simply have the wrong expectations. They tend to underestimate how much of an impact good invoicing can make, and overestimate how complicated it is to implement. So it ends up never showing up on the priority list simply because most people think it's too hard and not urgent enough.
But hear us out: invoicing can become a gigantic thorn in your SaaS company's side as the billing periods tick by, and usually by the time anyone notices any pain at all, it's such a mess by that point that fixing the billing system will cost you and your team months of valuable time. When your customers DO start to complain... yikes. That's a multi-stage project to fix it.
Here's some an even more compelling reason to consider getting ahead of the invoicing chaos: It's an easy way to build customer trust early on. From the very first invoice, if your customers receive something that's simple, straightforward, and correct, this can start the relationship off on a much better footing and raise the business' professional reputation. And as to the complicated implementation, we're pleased to inform you that this is also a myth. A decent billing setup should take you no longer to set up than actually creating the invoices themselves.
At the core of this positive customer billing experience is using the invoice line item system, which provides a detailed breakdown of the features being billed to your customers. Below, we discuss what you need to know about invoice line items, invoice items, and invoice objects — and why they matter for your SaaS startup.
What are Invoice Line Items and Invoice Objects?
Invoice line items – also called invoice items or just line items – are the individual components of an invoice that provide a detailed description of the products or services being billed to a customer. Each invoice line item typically includes information such as the feature name, quantity, unit price, usage level, and total cost. Whatever you personally like to call them, they functionally achieve the same goals:
1) allowing your customers to easily understand exactly what they are being charged for, promoting transparency and minimizing the potential for confusion or disputes, and
2) giving your team insights on which customers are paying for what things.
Typically, a separate line item field is created for each product or feature or service included in the invoice, which helps to maintain organization and clarity.
Invoice object is a term often used in billing software that simply refers to the internal accounting of each invoice, including the status and details of each bill.
Why do line item invoices even matter?
Enhance Transparency and Trust
Clear and detailed invoice line items help establish trust with your customers by providing full transparency on the charges they are incurring. This level of transparency makes it easy for your customers to understand the value they are receiving from your SaaS product and reduces the potential for confusion or disputes over billing. If your customers can easily look over an invoice and understand what's on their plan and what they're being charged for, they're far less likely to doubt the value of your product or feel like they have been charged too much.
Improve Customer Retention & Reduce Churn Risk
One thing leads to another: If your customers understand your invoices, see the value behind its components, understand how much they have used of a certain feature, and are not surprised when a new invoice comes in, they are more likely to stay with you. In contrast, confusion or frustration around invoicing can be a significant deterrent and may lead to customer churn.
Faster Upselling (and WOM)
With all the trust and transparency you've got going with your customers, this actually can create some pleasant and unexpected bonuses. One is earlier and increased WOM and referrals: customers know you're legit early on, they're impressed with the experience and they've never had any question as to what they're paying for or what value your product provides, so they may be more likely to send your name along to their colleagues.
By the same token, since they're being reminded every month of what features they're paying for and at what costs (and the value they receive), this creates easy opportunities to upsell them. Whether that's informing them that they could save on bulk pricing by upgrading to the Pro plan, or that they may really enjoy a new premium feature and you'll give them free access for a month, line items set the stage for easier and earlier upselling.
Improve the Billing Process
Accurate and organized invoice line items and invoice items are essential for an efficient billing process. It may not seem like it in the early days, but once you're issuing a new invoice for every customer every month, that easily becomes hundreds and thousands of invoices in no time. If even one customer has a small question or inaccuracy on a single invoice? That's hours of work to sift through and find the error.
By ensuring that each line item and invoice item is clearly defined and accurate, you can reduce the likelihood of errors or discrepancies that may lead to delayed payments or disputes. Oftentimes SaaS startups believe that this is not needed when they are still early-stage, but customer questions about invoices and a lack of clarity can lead to a lot of time spent with unhappy customers.
Simplify Financial Reporting and Analysis
Detailed invoice line items can also help streamline your startup's own financial reporting. By breaking down each invoice into individual components, you can gain valuable insights into your revenue streams and customer behavior. This data can be used to optimize pricing strategies, something that we at Wingback can tell you a lot about.
How to Optimize Invoice Line Items, Invoice Items, and Invoice Objects for Your SaaS Startup
Be Clear and Concise
This should seem obvious, but make sure that each line item, invoice item, and unit price on your invoice is clearly labeled and customer-facing. Avoid using jargon or technical terms that may confuse your customers; likewise, steer clear of internal terminology or price points that won't mean anything to your customers. Instead, opt for plain language that accurately describes the value they are receiving and that they can easily recognize.
Separate Out Tax Rates
Tax rates are typically applied on top of your products or services have been tallied up to reach a subtotal. To avoid any questions or confusion, make sure to list out each tax rate separately (not bundled together) so a customer can easily follow along with the math and see where the totals and percentages are coming from.
Use Consistent Formatting
Maintaining consistent formatting for your invoice line items, invoice items, and invoice objects, including fonts, spacing, and alignment makes it easier for your customers to read and understand their invoices. Ease of understanding is the end goal in terms of getting paid quickly, but it also ultimately helps contribute to a better customer experience overall.
Pro Tip: Create a standardized template that includes a line item field for each standard charge, including their unique identifier (if they have one) and unit price (as applicable). Every feature or "product" you offer should have its own line item field, even for the same feature offered at a different pricing or threshold amount in the case of bulk pricing or discounts.
Include Relevant Details on Feature Entitlements
For each invoice object, be sure to include all relevant details about the feature entitlements, such as quantity, unit price, and total costs. If you can, we also recommend creating codes or unique identifiers for each product (think: SKUs for physical goods) that make it easy for you to discern each feature, even if two customers have very similar looking features but perhaps they pay for them differently.
This information helps your customers understand the calculations behind their charges and provides an opportunity for them to review and confirm the accuracy of their invoice. Psst: Don't forget to include any applicable tax rates!
Enable Customization
Depending on your SaaS product's pricing model and customer segments, you may need to support many different pricing models and send invoices that are tailored to specific customer needs. Allowing for custom pricing plans means you can create line items and invoice items that accurately reflect each customer's unique usage and pricing requirements.
How Wingback Can Help
Wingback is a SaaS billing, pricing & packaging platform that makes it easy to create line item-accurate invoices out of the box. It also automates many of the manual tasks that revolve around billing your customers correctly with a user-friendly, no-code process (so non-technical team members can manage it too). If you're looking for a quick and easy way to automate your line items on invoices with a single source of truth, it's definitely worth looking into Wingback.
Conclusion
If you make it a priority to start thinking through your invoicing logic early on, you'll be one (big) step ahead of your competition. Why? By clearly spelling out the individual charges on your invoices, and doing so accurately, you end up creating a better customer experience where customers not only find it delightfully easy and simple to do business with you, but they also better understand the value your products provide.
Additionally, ensuring that your invoice objects effectively organize all essential billing information leads to a more efficient invoicing process and simplified financial reporting — setting your SaaS startup up for success down the road.
