Progressive Billing
Progressive Billing also known as progress invoicing, involves billing a customer at predetermined stages instead of waiting for the end of the billing cycle. In the B2B SaaS world, this usually used to reduce the amount of credit and the liability of the vendor by setting invoicing thresholds.
Threshold Billing
Threshold billing is a great way to minimize the risk around outstanding invoices. Vendors set invoicing thresholds, and customers are billed as soon as these limits are reached. Access may be restricted or blocked if invoices aren't paid promptly, minimizing vendor risk and upfront costs. Billing thresholds can also be adjusted based on the customer's account size and payment history.
For example, a company that sells GPU compute can set a threshold of $10,000. If the customer's usage and outstanding invoices exceed this threshold, the vendor will invoice the customer for the outstanding amount and may restrict access to the customer after a grace period expires or until the invoice is paid.
When is this pricing model used?
Progressive billing and threshold billing are most commonly applied by companies selling AI, compute and automation products where users can create a large bill in a short amount of time. For example a company that sells GPU compute.
Threshold billing is also great to minimize fraud risk by limiting the amount cost a customer can incur before the vendor blocks access.
What does this pricing model solve?
- Limits vendor risk and outstanding credit
Why is this pricing model challenging?
- Requires a real-time billing solution
- Requries an invoicing solution that can handle partial billing cycles