Adobe Stock
“We have become slaves to subscriptions.”
That’s a quote from my millennial son. But its true for all of us. We rent everything. Think Adobe. Netflix. AWS. Getty Images. Getty Images has pursued an aggressive acquisition strategy of buying up many privately owned agencies that had built up a stock photography business. And companies and their investors love this for good reason. Subscription revenue creates stable and predictable revenue streams without a sales cost, thus increasing their valuations.
Subscription spend as a percent of total B2B vendor spend is growing (we know business travel and expense spend had a significant drop, with an unknown next few years), although there is no specific industry data. I am sure there are spend analytics firms that can slice and dice the procurement data to prove this.
And because of technology, it’s no longer coffee services, or maintenance contracts, or cloud storage or servers that is on a subscription. Companies have integrated technology into their products, enabling them to gather data and offer as a subscription.
Michelin, the tire and rubber company, uses sensors on tires to offer MICHELIN Track Connect technology to keep trucking companies and others constantly informed of the pressure and temperature of each tire. United Technologies has announced plans to monetize its data and analytics capabilities by leveraging IoT capabilities into value-added, subscription-based services to its client base.
So with all these subscriptions to pay for as buyers and to accept payment for as merchants, how does a company manage?
Buy-side subscription management
Many companies have shifted their services into the Cloud during the Covid pandemic. They now have IT paying for infrastructure and renewing domain names, Marketing buys Facebook and Google ads, Human Resources paying for their LinkedIn employee subscriptions, so many services have to be paid on a recurring basis.
When all of these services are linked to a corporate card that can be in the hands of multiple employees, problems happen. Cards expire, cards get lost or canceled, employees quit. For a small to mid-size business, this can all cause business continuity issues, from losing domain names to having infrastructure be frozen.
Increasingly, solution providers are offering companies a way to manage this spend in a controlled way without the need to issue corporate cards to specific individuals. One such company, Mesh Payments, provides a one-stop hub to orchestrate, manage, analyze and optimize and reconcile subscription payments and prevent payment failures.
Sell-side subscription management
Merchants must bill customers for B2B subscriptions, typically automated on a fixed schedule. Invoices must be generated for various subscription plans (fixed, usage), billing frequencies, and to manage discounts. Software must also issue cancelations, provide email notifications, update customer payment details, and perform payment collection, including integration with various payment gateways, depending on where B2B customers are coming from. And companies may pay for their B2B subscriptions via a number of different payment methods — a combination of checks, ACH and card, creating a huge headache for Treasury.
There are many more sell-side solutions than buy-side solutions. Many of the PayFacs have added subscription management software to their suite. We profiled Bluesnap recently and its Subscription Billing Engine.
As subscriptions become a bigger slice of the B2B vendor world, solutions on both the buy and sell side will be needed by companies of all sizes.
David Gustin runs Global Business Intelligence, a research and advisory practice focused on the intersection of payments, trade finance, trade credit and working capital. He can be reached at dgustin (at) globalbanking.com.
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