If you sell recurring services, licences, service agreements or memberships, the single invoice is not the hard part. The hard part is keeping track of all the subscriptions: who is invoiced when, at what price and for which period, and what happens when a customer changes plan or cancels. This guide shows how subscription management and subscription billing tie in with the bookkeeping in e-conomic, with worked examples of accruals and upgrades and downgrades.
What a subscription must hold
Before anything can be invoiced automatically, every subscription needs the same information:
- Customer, with the billing address and payment terms on the debtor in e-conomic.
- Service and price, preferably as a product number in e-conomic, so the sale lands in the right product group and on the right revenue account.
- Interval: month, quarter, half year or year.
- Start date and next invoice date, so no period is forgotten or invoiced twice.
- Commitment and cancellation: when the customer can stop at the earliest, and with what notice.
When that information is spread across spreadsheets, emails and memory, that is where the mistakes start. Subscription management is first and foremost about having one list that is right.
In advance or in arrears?
- Invoicing in advance is usual for subscriptions: the customer pays for the period before it begins. It brings cash in, but part of the revenue belongs to next financial year if the period crosses the year end.
- Invoicing in arrears is used when the price depends on usage, such as the number of users or hours. Then the amount is only known when the period ends.
Many combine them: a fixed base amount in advance and usage in arrears on the same invoice.
Example: an annual subscription across the financial year end
If subscriptions follow the calendar, so an annual subscription covers January to December, it never crosses a financial year that also follows the calendar year. With a shifted financial year it does. Example: a customer takes an annual subscription at DKK 12,000 excl. VAT for the calendar year, invoiced in advance on 1 January, and your financial year ends on 30 June:
| Entry | Amount |
|---|---|
| Invoice: subscription 1 January – 31 December | 12,000.00 |
| VAT 25% | 3,000.00 |
| The customer pays | 15,000.00 |
| Revenue this financial year (January–June, 6 of 12 months) | 6,000.00 |
| Revenue received in advance for next financial year (accrual) | 6,000.00 |
The VAT follows the invoice and is settled in the VAT period the invoice was issued in. The revenue, on the other hand, is spread over the subscription period. At the year end on 30 June the DKK 6,000 is moved to deferred income on the balance sheet and back to revenue in the new financial year. If you have many annual subscriptions, it is worth asking your accountant for a fixed method for that accrual.
Upgrading and downgrading mid-period
When a customer changes plan mid-period, the customer should pay for what was actually delivered. The usual way is a pro rata adjustment. Example: a customer on Basic at DKK 499 a month upgrades to Pro at DKK 799 a month on the 16th of a 30-day month, having already paid Basic for the whole month:
| Line | Amount excl. VAT |
|---|---|
| Pro, 16th–30th (15 of 30 days at 799.00) | 399.50 |
| Basic, 16th–30th, already paid (15 of 30 days at 499.00) | −249.50 |
| VAT 25% | 37.50 |
| Extra to pay | 187.50 |
From the next period Pro is invoiced at full price. A downgrade goes the other way, as a credit note or a deduction on the next invoice. Decide one rule, write it in your terms, and use it every time.
Cancellation, price increases and payment
- Cancellation. The subscription stops at the end of the last paid period, or after your notice period. If a period the customer will not get has been invoiced in advance, make a credit note on that invoice, not a new negative invoice with no link to it.
- Price increase. Give notice in good time and as your terms say, and enter the new price from a set date, so invoices before and after that date are right.
- Payment. Card through a payment provider, Betalingsservice or bank transfer. Whatever the method, the payment must close the invoice in e-conomic, so the debtor comes to zero and reminders only go to those who have not paid.
Common mistakes
- A forgotten renewal, because the next invoice date was only in a spreadsheet.
- Double invoicing, when the same period is invoiced both by hand and automatically.
- The whole annual subscription as revenue in the year it was invoiced, with no accrual at the year end.
- Upgrades and downgrades without a rule, so two customers in the same situation pay differently.
- Cancelled subscriptions that keep being invoiced and then have to be credited.
- Free text instead of product numbers, so revenue cannot be followed per service.
Questions about subscription billing
Can e-conomic invoice subscriptions itself?
e-conomic can make recurring invoices with the same content, which suits simple agreements with a fixed amount. If you have many customers, different intervals, upgrades and downgrades or prices that change, it is easier with subscription management that keeps track of the agreements and makes the invoices in e-conomic from them.
Which date should the invoice have?
When invoicing in advance, the day the period begins, or the day you send the invoice before it. Always write the period on the invoice line, such as "1 January – 31 December", so both the customer and the accountant can see what was paid for.
Do subscriptions need a customer in e-conomic?
Yes. Every invoice needs a debtor, so payments, reminders and credit notes are tied to the right customer.
Automatically with 2app
The subscription module from 2app keeps track of the subscriptions per customer: products with quantity and price, a discount as a percentage or an amount, monthly, quarterly or yearly invoicing and the next invoice date. When a subscription is due, the invoice is made in advance for the period, with the period written on the line, and sent to e-conomic as a draft invoice that you post yourself. If the customer or product does not exist in e-conomic, it is created from the customer number and product number. A cancelled subscription is not invoiced again. Upgrades and downgrades mid-period and accruals are still done in e-conomic by your own rule. 2app goes through your subscription models and sets up the module together with your finance team. See also subscription and billing.