First, let’s start with an explanation of the terms consolidated billing and invoicing. Although billing and invoicing are two different operations, the two terms appear when businesses describe the same process.
It’s consolidating what could be more bills into one, usually monthly, payment. It’s a billing process of creating a single invoice containing multiple product and service charges. That is why you will sometimes hear a third term, consolidated charging.
We at Tridens, the experts in the field of billing systems, believe the only correct term is consolidated billing, and we will explain why!
We will also explain how consolidated billing works and why it’s a crucial function of any billing software, especially enterprise billing software.
Table of contents
What is Consolidated Billing?
First, consolidated billing should not be mistaken for the term Bill consolidation, a debt management strategy also known as debt or loan consolidation.
Consolidated billing is a feature of the billing software that combines customers’ multiple charges into a single bill.
That consolidated bill is then transformed into an invoice and sent to the customer.
The invoice contains the total payment the customer owes with detailed information on each charge, when it happened, at what price, etc.
Let’s look at a simple example.
The Energy & Utility industry uses utility billing software with consolidated billing to combine the water and sewage charges, electricity and gas usage, and any additional services the customer might use.
At the start of the month, the customer gets an invoice showing the usage, price, tax, and balance he owns for every service.
At the end of the invoice is the total balance, the total amount he owes the utility company for that month.
Consolidated billing results in one invoice, where the customer can transparently see what the company charged him.
Hence the other name – consolidated invoicing. But we’ll stick to our definition!
The correct term is consolidated billing because billing is a process, and the invoice is only the document, the result of that process.
Before we explain how billing works, let’s examine a vital topic crucial to understanding billing.
It’s the difference between a bill and an invoice.
Invoice vs. Bill: What is the Difference?
When talking about billing, people commonly confuse the terms bill and invoice.
A company will issue a bill to the customer after payment as evidence of the transaction.
However, an invoice is a document a company sends to the customer before the payment is due.
For example, when you buy groceries and pay at the register, you receive a bill.
When you use a service or have a subscription, the company will issue an invoice requesting payment for what you owe them.
For instance, a water provider will use its water utility billing software to automatically send its customers a monthly invoice.
It will include detailed data on total due, along with the specification of water usage and fixed and usage-based rates.
An invoice is a legal document that requires payment for rendered and combined services the business provides. It supports internal accounting and VAT operations with a record of the goods and services sold.
Usually, the invoice has a specific template with customers’ and businesses’ information.
The invoice must include at least the following information:
- Customer’s name, address, and contact data
- Date of issue
- Invoice number
- Account number
- Service description
- Total due
- Deadline date
- Payment method/Bank information
How does Consolidated Billing Work?
The term consolidated means to combine or unite. To explain the consolidated billing process, let’s look at four essential steps.
Step 1: The Event
Every time a customer purchases something or uses a service, he performs an action, an event.
An event happens when he makes a phone call or views a pay-per-view movie on a video streaming platform.
Also, an event occurs when a smart (or regular) meter reports electricity, gas, or water usage.
Step 2: The Charging
Every product has its price or charge, as we say in business jargon.
When an event is triggered, this charge is added to the user’s account.
For instance, the gas price is $3,2 per cubic meter.
The smart meter reports daily usage, and the user used three cubic meters yesterday.
The system adds the charge of $9,6 to his currently open bill.
Step 3: The Billing
Billing works in billing cycles. In the contract between the consumer and the company, the billing cycle is defined.
The most common is a monthly billing cycle.
But from the perspective of the billing system, it doesn’t have to be.
The billing date can be set to any date in the month. The business can set the billing cycle to any duration.
Weekly, monthly, three months, annually, it doesn’t matter. It’s a question of the business model.
If the billing cycle is one month (1st to 31st of August), the billing date is the first day after the cycle closes (1st of September).
The billing system will automatically run the billing process on the day of billing.
The billing process will take all the charges in the users’ accounts and convert them into a bill.
Step 4: The invoicing
After the billing is complete, the invoicing process takes the bill and creates an invoice.
For that, it uses a predefined customizable invoice template.
The result is an invoice, a document that follows all accounting and legislative rules, as mentioned before.
Most modern billing software, like Tridens Monetization, will create an invoice in JSON format.
The invoice can then be used for e-invoicing or converted into other formats (HTML, XML, PDF) or printed.
But this is still not a consolidated invoice because a user would receive a separate invoice for, let’s say, gas and electricity.
For that, the billing software must support consolidated billing.
The Consolidation of Charges into One Bill and a Single Invoice
If you use consolidated billing, the system will assign all client’s individual charges to a single bill.
So all charges from gas to electricity and other services are combined into one bill.
When doing consolidated billing, the system will also consider any discounts, under or overpayments, and other factors influencing the total amount due.
The end result of this consolidated bill is one invoice where the client can easily see how much he owes the company in total and for what services.
Why use consolidated billing and invoicing?
Consolidated billing and invoicing is a must-have for businesses that work with multiple accounts and recurring billing.
On the company side, it reduces the time and costs of sending individual invoices.
On the user side, it improves transparency and reduces the costs of multiple payments.
But the benefits of consolidated billing don’t end here.
The Benefits of Consolidated Billing
Using consolidated billing and single invoices has many benefits.
Instead of invoicing separately for each service or item utilized, a single invoice is better for both businesses and their clients.
There are several key benefits of using consolidated billing and invoicing.
A Better Customer Experience (CX)
From the customer’s perspective, the first significant benefit is transparency.
On the invoice, he can easily see and review all the charges in one place.
It’s easy to check the usage and rates. Especially in utility, the bill consists of metered usage combined with different municipal and environmental charges and taxes.
In the communications industry, a bill combines complex usage-based pricing models with fixed charges for other services and devices.
All this is hard for a user to decipher if the invoice is too complex or missing a good specification.
In the end, the user wants to know exactly what he is paying for, so transparency is the key.
The second benefit that improves customers’ experience is the time, effort, and costs of paying the invoices.
No matter what payment methods one uses, every payment brings payment fees and time spent on the procedure.
A single invoice is also a message from the company that they value their user by minimizing the effort and cost of their interaction.
The Prevention of Missed Payments
When a company sends more invoices to the same customer, there is a chance that one or more of them will get overlooked.
Even the most caring client can get overburdened by paperwork and administrative tasks and miss a payment deadline.
If that happens, the company must start the dunning process, something all try to avoid.
A consolidated invoice is a proven strategy to reduce late payments that disrupt the predicted cash flow and help reduce involuntary churn due to missed payments.
Saving Time, Cost, and Energy
Consolidated invoicing not only saves time for customers but also for businesses.
With consolidating invoices, there are fewer invoices to process.
In the case of sending paper invoices, the time and cost savings are even more apparent.
Nonetheless, automated, consolidated billing also has less chance of billing errors.
Consolidation and automated billing improve productivity and significantly relieve employees.
Who needs Consolidated Billing and Invoicing?
The communications industry was the first to use consolidated billing.
They were the first to combine land and mobile phone usage bills with broadband or mobile data transfer, IP TV, devices, and other services into one invoice.
However, in telecom billing, we use the term convergent billing.
Nowadays, consolidated billing is everywhere because of its benefits on one side and customer experience on the other side.
Any business that uses recurring billing and offers more than one service must incorporate consolidated billing and invoicing.
We already mentioned Telecoms and Energy & Utility industry, where consolidated utilities billing and services are well implemented.
Or at least they should be.
If you want to read more on this topic, please read our blog on utility billing software solutions.
The digital disruption in the last years has dramatically transformed the Media & Entertainment industries’ business models.
Subscriptions, freemium and free trial models, paywalls, and pay-per-view are often combined.
They no longer only offer information or entertainment but look to other content and data monetization strategies.
The subscription business models combined with complex pricing that requires consolidated billing are strong in many industries.
Among them is the software industry with SaaS or the online education industry and its business models.
…and ones with room for improvement
In the insurance industry, users commonly complain about receiving too many invoices.
Sure, many companies enable consolidated invoices for car or motorbike insurance.
However, they can’t combine them with the same customer’s house, life, and health insurance.
The common excuse is that that falls into different departments or even sub-companies and that they can’t do that.
The reality is that they probably don’t have enterprise billing software capable of handling that kind of consolidated billing.
But they should step up and not only enable consolidation for one client.
They must upgrade so that the whole household can opt to consolidate bills into one monthly payment for all the insurance policies of all household members.
Last but not least on the list of businesses that must incorporate consolidated billing are healthcare organizations, Banks and FinTech companies, and others working in financial services.
It is safe to say that most businesses in different industries need a reliable online billing platform that offers consolidated billing and other advanced billing features.