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Juice Bar

SaaS Payment Processing: How to plan for scale & growth

Morgan Williams



Morgan Williams


November 11, 2022


Juice Bar

Software as a Service ('SaaS') businesses have different payment processing needs than other types of businesses. SaaS businesses need a payment processor that can handle payment methods that your customers use, technically operate the nuts and bots of recurring billing, and ensure tax compliance in the areas you sell to.

There are many different options out there, but not all of them will fit the needs of a SaaS business. A payment processor is simply one that settles payments between the selected payment method and your bank account.

Let's jump in.

Most popular types of SaaS payment processors

There are two major varieties of SaaS payment processing:

  1. Payment service provider (PSP); a type of payment processor that allows businesses to settle payments by the limited payment gateways they offer (eg. Visa, Mastercard, ACH), and you act as the legal seller. Many sellers have multiple Merchant Accounts to offer multiple payment methods. You are also liable for the taxes, fraud, chargebacks, etc. associated with your payments.
  2. Merchant of Record (MoR); a type of enhanced payment processor that settle payments with a variety of payment gateways (eg. PayPal, Apple Pay, Visa, ACH, etc.) they offer by acting as the legal seller on your behalf, along with other business features like sales tax remittance, emails, checkout, etc. In this case, the MoR is held liable for the taxes, fraud, chargebacks and more.

It’s important to choose a SaaS payment processor that has the features you need and that will scale with your business as it grows.

The last thing you want to do is having to switch your payment processor down the line because you outgrew it, or you're overpaying for all the other features that your business needs to function properly. 

Many features can be handled right off the bat with a better choice of SaaS payment processor.

Most payment service providers only work with a limited amount of payment gateways. If you want to offer, for instance, PayPal and credit cards, you'll need to have a PayPal Merchant Account, along with a Merchant Account with your credit card payment processor. That way you can offer both PayPal payments and credit card transactions at checkout.

Comparatively, if you signed up for a merchant of record payment processor, you could have access to the most commonly used payment methods from across the world, without having to set up a Merchant Account with each separate payment gateway.

You can avoid major hassles by taking some time to research what you're looking for in a SaaS payment processor early on, by aligning your long term goals with the features they offer.

Consider some of the tasks you and your customers will be needing as it pertains to recurring billing, and expand from there.

The basic requirements for SaaS payment processing

It's important to have a clear understanding of your long term SaaS business goals. 

This will help you determine what features you should be looking for in a SaaS payment processor, and indeed influence your entire stack of software needed to accomplish your business' long term goals.

Otherwise, you'll end up scrambling as you grow, diverting resources to fix systemic issues, and end up paying a premium for external services, you could've had the functionality of already, if you had chosen wiser.

Some simple, yet often forgotten questions when initially choosing a SaaS payment processing platform:

  • Will you be doing subscription changes when requested, or will customers have a way to do this themselves?
  • Do you want to form companies, collect and remit sales tax in all the areas of the world you sell to?
  • Are you thinking of going with payment processing fees to save money, but sacrificing features because you can "add them in later"?
  • Will you have to develop custom code on your website with a payment service provider to accept orders, instead of simply connecting your website to a Merchant of Record service that's ready to roll?
  • Do you want to increase conversion rates and offer local currency options that suit your differing customers?

Make a list of the customer interactions with your company, then think about which features you'll need to accomplish them.

This will give you a good understanding of what you'll eventually be paying for later, so a cheaper transaction fee might not be that cheap after all.

Let's go into the recommended features when choosing SaaS payment processing.

The payment processing features that drive SaaS

Whether you're using features provided by your SaaS payment processor, custom code, or external providers, these should be considered from the start:

  • A user-friendly interface for customers and employees
  • Multiple, secure payment options, including PayPal and Credit Card
  • Recurring billing for subscriptions and membership plans
  • License management for digital downloads or content access
  • Sales tax collection and remittance
  • Secure, PCI-compliant transactions
  • Dunning management to reduce lost revenue
  • Coupons and discounts for promotion
  • Transaction emails & email marketing to bring customers back

You may want to add a way for customers to view and change their billing and payments on your website, a sales tax system (or hire accountants around the world) to help with global tax collection and remittance, or an email marketing platform to help promote your products to leads and existing customers.

Ultimately, the sky is the limit when it comes to integrations, and the needs of your business will dictate which ones are right for you. However, by carefully considering which features you need now and which ones will be useful in the future, you can ensure your business is better equipped to meet its ever-changing needs by choosing the correct SaaS payment processing platform.

By taking the time to assess your goals, you'll be able to figure out which features in a payment processor you'll need that best suit, and avoid common growth problems down the line.

If these features are needed later integration will be needed, and if not considered at the start, will cost much more time, labor, and distraction down the road.

Transaction fees vs feature tradeoff 

As your business grows, you will begin to want features that weren't necessary when you had fewer customers. A common mistake is discounting features you don't need currently for a lower transaction fee, but requiring them soon after - at greater expense and workload.

A useful way to figure out which features may be needed, is to imagine yourself as a customer and the common scenarios they could have when interacting with your website and products.

  • Is your website or your payment processor going to handle your customers recurring billing of their chosen payment method?
  • Does the customer have a way to change their subscription, or will you need to dedicate time towards customer service?
  • Where are you storing customer’s sensitive data? Are you willing to take that legal burden?
  • Are you collecting sales tax and remitting it in each area globally that requires it?
  • Will your payment processor accept more payment methods that your customers use?

The ideal setup for your SaaS business could be a combination of multiple processors and tools that are part of your overall software stack - depending on your business type, needs, and goals. You can minimize the complexity of your stack by planning ahead and choosing a smart payment processing platform.

Lemon Squeezy has the essential features you're looking for and makes SaaS payment processing easy, peasy. Get started now for free, no credit card required.

Transaction fee rates are usually never the real cost

When you're running a business, transaction fees can quickly eat into your profits. 

That's why it's important to compare transaction fees before you choose a payment processor. However, just because a payment processor is cheaper, doesn't mean you'll save money.

Here are some common scenarios that will make you reconsider a payment processors low transaction rate, while sacrificing functionality:

  • Most payment service providers provide inflexible recurring billing features and don't actually have a way for you to edit subscriptions easily when a customer request changes. Some even require you to do command lines in a Linux Terminal!
  • Most payment service providers don't offer a built-in way to re-attempt a charge on a declined payment, or offer a customer an easy way to change their payment method for their existing subscription. This process of recovering payments is called Dunning Management, and its goal is to reduce churn (revenue dropout). Even when payment processors offer this service, many charge exorbitant transaction fees on top of the normal rate for simply retrying a declined payment method.
  • Most payment service providers rarely, if ever, will collect sales tax for you. As an online merchant, you are responsible for collecting and remitting sales tax on the products or services you sell. This can be a daunting task, especially if you're selling online around the world, which is most likely the case if you're offering a digital product. This can be a major expense when hiring accountants, registering companies across the globe, and implementing suitable tax software for those countries.

  • Most payment service providers accept credit cards, but what happens when your customers in Australia want to pay with B-Pay? That means new custom website code to integrate with the B-Pay payment gateway. To get that payment gateway functioning you'll need to register a new Business in Australia, then get a business bank account, then apply for your new Merchant Account with the bank, then finally set up your B-Pay settings on the account. That's a lot of work for one payment method in a random country... imagine doing this for the entire world you're now selling to.

Implementing these features later can become an ongoing reality that can drag your businesses focus and growth.

Focus on a building a better product, why waste time developing features that are ready to use.

There are a lot of choices out there when it comes to SaaS payment processing, and it can be tough to know which one is right for your business. However, there are a few key factors that you can keep in mind to help you make the best decision.

When you're choosing payment processing for your business, it's important to consider whether you want to be the Merchant of Record, or not. This is an important choice, as it can impact things like liability and customer service.

  • Being the Merchant of Record means that you are responsible for handling all aspects of the transaction, from taking payments to issuing refunds.
  • It can make accounting and tax compliance simpler.
  • It can also help protect your business from chargebacks and other financial risks.

If you're not sure whether being the Merchant of Record is right for your business, there are a few things to consider:

  • First, how much legal responsibility are you comfortable taking on?
  • Second, are you selling your product internationally?
  • Finally, ask yourself how important it is to not worry about the nitty gritty of payments, taxes, and subscription management?

If these are concerns you believe you'll see when you scale up, then having a SaaS payment processing platform acting as a Merchant of Record on your behalf with those features would be a smart option; instead of a normal payment processing platform which offers basic payment processing only.

Next, think about how easy onboarding or launching will be. You'll want to choose a SaaS payment processor that makes it easy to get started, so look for things like customized migration services, or easy checkout creation to get selling immediately.

Finally, consider what features are most important to you. Some platforms offer all-in-one payment processing, while others specialize in things like global payment methods, or subscription management. Whichever platform you choose, make sure it offers the features that are most needed for your SaaS business.

Now that you know what to look for, it's time to make a decision about which SaaS payment processing company is the best fit for your business.

Lemon Squeezy has the essential features you're looking for and makes SaaS payment processing easy, peasy. Get started now for free, no credit card required.


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