For recurring revenue and subscription businesses, expanding into new geographic markets can unlock opportunities to access additional customers and fresh sources of revenue. With global economic optimism on the rise, more enterprises are looking outside their existing footprint for growth opportunities in the year ahead.
Moving across borders poses challenges for the whole business, particularly when it comes to billing. In each new region, companies must account for regulatory issues, comply with countrywide and local tax requirements, and consider softer, cultural sensitivities related to how companies typically invoice, correspond with, and collect payment from subscribers.
Enterprises planning an international expansion should review the following billing and subscription management considerations:
New entity versus extension of the mothership
The first order of business for any globally expanding subscription company is to determine how to organize themselves in the new market. Creating a new legal entity in each market is one option. Operating as an extension of the centrally located business is another. Some countries, like China, require all entering companies to form a standalone entity. But elsewhere, this decision will have implications for how subscribers are invoiced, and the back-office technology required. Establishing a separate legal entity will require a unique set of books, the management of disparate product catalogs, and likely a separate billing and revenue management platform. Where the choice is in their hands, companies should analyze the pros and cons of how they intend to operate, keeping these critical billing considerations in mind.
The intricate and complex nuances of taxation
Taxation rates vary greatly from one country, state, province, and county to the next. In addition to understanding the different tax rates in the locations in which they intend to operate, companies must also familiarize themselves with, and adhere to, rules and regulations regarding how and when taxes are applied, when during the buying process taxes are levied and collected, and more. In the U.S., tax is often applied after the purchase. In other countries, like Australia and most of Europe, Value Added Tax must be incorporated into the total price. In some jurisdictions, every aspect of tax must be itemized in granular detail on a receipt or invoice. There are even requirements that dictate with extreme specificity how taxes must be presented on invoices. For globally expanding enterprises, having basic knowledge of various tax rates and percentages is just not enough.
Complying with labyrinthian data regulations
Data protection is a hot-button issue across all industries and geographies. From GDPR in Europe to CCPA in California, governments and regulators continue to introduce a complex maze of laws governing the management of personal data. Data residency requirements are vast and diverse. For subscription companies, the implications are significant. A cloud company moving into a new region, for example, may be required by law to establish a data storage facility physically located in that country where billing, customer, transaction, and payment data can be housed and securely stored, never to be sent across borders. An American company moving into the DACH region will face incredibly detailed and strictly enforced requirements. Penalties for non-compliance are so severe that they could threaten or derail expansion success.
Billing notifications, free trials, cancellations, and more
As subscriptions have exploded in popularity over the past decade, the rules and regulations governing subscription management have grown in both number and complexity. With consumer complaints and crackdowns against illegal or unethical subscription management behaviors on the rise, globally expanding enterprises must familiarize themselves with the correct practices for engaging and managing subscribers. In the European Union, for example, SEPA requires companies to notify customers at least 14 days before charging or debiting for a product or service every month. Unique rules that apply to a range of subscription-related activities such as opting in and out of services, free trials that convert to paid subscriptions, renewal notifications, and subscription cancellations, continue to evolve and change.
While all this may seem daunting and onerous, subscription companies need not be deterred. Challenges can be overcome by working with locally based accounting and legal professionals and procuring a billing system that has the flexibility and agility to scale and expand as the organization moves into new markets.
Are you planning a geographical expansion for your business? Aria can help. Contact us to learn more.
