What is Billing Mediation?

Billing mediation is the process of collecting, transforming, and normalizing raw usage data into a standardized format billing systems can use. It’s particularly common in telecommunications, utilities, and cloud services industries, where customers are charged based on their actual consumption.

Essentially, “mediation” is the process of converting the usage data into pricing.

• A cell phone provider collects data on call durations, numbers dialed, and used data. These are then converted into prices based on the customer’s specific plan.
• A SaaS company gathers data on the number of active users, amount of storage space, and features they accessed, then converts it into prices based on the customer’s subscription tier.
• A utility company collects data on energy usage and the hours it was used to calculate the final bill.

Within billing software, the process happens automatically. The mediation engine reads data from the metering or tracking system, does the math, and applies the rate to come up with the final price charged to the customer.

Synonyms

• Billing data mediation
• Usage mediation

How Billing Mediation Works

The billing mediation process is actually quite simple. The same way you’d calculate the amount of apples to buy based on the number of kilograms and price per kilogram, the system calculates your final bill.

It does this by applying the appropriate rates to each usage component. You can think of each usage component as an item on your receipt.

There is, however, a set of steps the billing mediation system takes to get to that final calculation. Let’s walk through each one briefly:

1. Collection

The system integrates with different network elements and service platforms in your hardware and/or software ecosystem — such as switches, routers, servers, and applications — to collect raw usage data. This is where it locates and quantifies activities like call records, data consumption, and service usage events.

2. Integration

Collected data often comes in diverse formats and from different protocols. The mediation system integrates the data from all the different sources so that it’s centralized, compatible, and can be processed effectively by the downstream systems.

3. Normalization

After integration, the system converts the data into a standardized format. This step ensures consistency, and it allows the billing system to accurately interpret and process the information it’s looking at.

4. Validation

The system checks the integrity and accuracy of the normalized data. It verifies timestamps, user identifiers, and service types and filters out anything that’s irrelevant. That way, only valid and accurate data makes it to the final billing stage.

5. Enrichment

The mediation system enhances the usage records with additional information, such as customer details, service plans, and geographical data. This gives the system all the context it needs for each usage event.

6. Aggregation

For certain billing structures (like prepaid, postpaid, or tiered pricing), the system might summarize or combine multiple usage records into a single record based on predefined rules. The mediation system aggregates the data by grouping and calculating the necessary fields to create a consolidated record. This reduces the data volume and simplifies processing.

7. Routing to billing systems

Once the data is ready to go, it’s sent to the billing platform for invoicing. In an automated invoicing process, the line items and corresponding prices instantly populate the invoice form. From there, it’ll automatically send the invoice to the customer via email or their portal, notify them, and either charge their card on the spot or require a payment according to your payment terms.

Billing Mediation Use Cases

Companies using billing mediation platforms usually use one of four business models:

• Telecommunications
• Cloud services and SaaS
• Utilities
• Internet of Things (IoT)

These industries generally need a billing platform that can handle mediation because they use usage-based pricing.

Telecommunications

Phone service providers gather the raw data from switches, telephone exchanges, and other network devices in the form of call detail records (CDRs) or event detail records (EDRs). This captures details like call duration, messages, data consumption, and service usage.

Once they go through the process, the billing system applies predefined business rules, like pricing models, discounts, and promotional offers, to the processed data to determine the appropriate charges for each service.

Cloud services and SaaS

In the software industry, usage-based billing can work a few different ways. Many software vendors strictly charge based on the number of users, while others use other metrics like:

• API calls
• User interactions
• Storage consumption
• Transactions processed
• Computational resource usage

It all depends on the product you’re selling. AWS uses a pay-as-you-go model for computing power, storage, and data transfer. Twilio charges per message or call. Mailchimp sells email credits. And Zapier calculates billing based on the number of tasks (automated actions) executed.

For SaaS products, a billing platform with mediation capabilities integrates directly with the product to track usage. At the end of the billing period, it calculates charges based on factors like subscription tiers, pay-per-use rates, and any discounts and promotions applicable to the customer.

Utilities

Utilities use a metered billing model in which customers are charged based on their consumption of resources like gas, water, and electricity. The meters track consumption using smart meters, which send usage data directly to the utility provider.

With this model, billing is sometimes done in tiers or blocks. As customers consume more resources, they move up to the next tier, which has a higher per-unit cost. This incentivizes customers to conserve resources and keep their bills manageable.

Internet of Things (IoT)

IoT devices help companies monitor usage of industrial equipment, track inventory levels, analyze in-store customer behavior, and connect their physical spaces through apps (e.g., security cameras and sensors, smart homes and buildings). When the sensor data is sent to the cloud, customers are charged for the amount of data transferred and any processing done.

On the company’s end, the device’s software component registers usage and tracks the customer’s account information. This data is then sent to a billing platform that calculates charges, applies any discounts or promotions, and sends invoices to the customer.

Benefits of Billing Mediation

Using automation for complex billing models, like usage- and consumption-based billing, makes the process more efficient and accurate for both providers and customers.

When you let software handle the process, you have the following advantages:

Accuracy

By meticulously gathering and transforming data into a standardized format, billing mediation significantly reduces billing inaccuracies and disputes. Precision is what fosters trust between vendors and their customers, and when charges reflect actual usage, it strengthens their relationship.

Efficiency

Automating the collection and consolidation of data expedites the billing process, which in turn reduces your operating expenses and accelerates the billing cycle. With efficient billing, you also have the ability to respond faster to customers’ billing inquiries, and they’ll have fewer errors to deal with.

Not to mention, automated billing also takes care of revenue recognition for you. Rather than spend hours on manual calculations, the software recognizes revenue according to your required standards, instantly.

Flexibility

Mediation accommodates diverse data sources. It integrates with the different aspects of your product/service offering and adapts to different pricing models. What that means is (assuming you’ve chosen the right billing platform) you can simply plug in your usage data, regardless of how many meters you have and what type they are.

Real-time processing

Advanced billing mediation systems can process high volumes of data in real time, meaning you’ll always have immediate access to current information. Real-time mediation also supports timely decision-making and responsiveness to changes in customer behavior.

Revenue assurance

When everything is correctly billed, you’ll have less revenue leakage. You also won’t have to worry as much about involuntary churn, dunning, or late payments from customers who dispute charges. In fact, most customers will be charged automatically. And when a payment fails, it’ll trigger an email notification right away.

Scalability

As your company grows and the amount of data you’re working with increases exponentially, real-time billing mediation systems can handle it. Since it’s cloud-based software that connects to your data sources, it’s easy for it to maintain seamless billing operations without compromising performance.

Billing Mediation Challenges and Solutions

Challenge: Handling diverse data sources

The biggest challenge when it comes to billing mediation is handling the different types of data. If they aren’t compatible, the system won’t be able to read them properly. For example, if you’re using different metering systems with different data structures or formats, it will be difficult to process all of the information accurately.

Solution: Implement flexible data ingestion tools that support multiple formats. Examples include ETL (Extract, Transform, Load) tools and APIs that can handle all types of data.

Challenge: High volumes of data

Volume tends to be another issue. We already know it’s virtually impossible for a human to process massive amounts of data accurately. But it’s also not doable if you’re working with outdated software that can’t handle demand increases.

Solution: Use a scalable, cloud-based rating engine that can handle as many or as few customers as you have without any extra setup or cost.

Challenge: Data latency and delays

Since all your customers are on different billing schedules, you’ll need to instantaneously process data from different sources at various times. Your billing system has to be able to handle all of these data points without any lag time, or your reporting and invoicing processes could be delayed.

Solution: Choose a billing mediation system that has real-time processing capabilities. This ensures timely and accurate billing for your customers.

Challenge: Data integrity and accuracy

Billing mediation systems are only as good as the data they receive. If there are any discrepancies or errors in the input data, it can lead to incorrect billing, revenue leaks, and unhappy customers.

Solution: When you’re evaluating billing software, look into each tool’s validation and reconciliation mechanisms. If it’s worth its salt, it’ll have built-in validation to flag anomalies in the data, and it will reconcile that data from different sources to ensure accuracy.

Automated Billing Mediation Best Practices

Simply downloading software isn’t enough. You need to have a strategy in place for implementing and maintaining your billing mediation system.

Here are some best practices:

• Process usage data in real time. Real-time processing facilitates faster billing cycles and guarantees every customer gets their invoice at the turn of the billing cycle.
• Prioritize scalability in your tech stack. That extends beyond your billing system. If one of the interconnected tools (e.g., your CRM) isn’t advanced enough to scale with everything else, you’ll have to rethink your entire tech infrastructure.
• Consolidate your tech stack, if you can. Some tools should be integrated to work seamlessly with others. For instance, your CPQ (configure, price, quote), contract management, and billing software will work a lot more seamlessly as a unified quote-to-revenue solution.
• Invest in training. No matter how sophisticated your billing system is, it’s not going to run itself. Someone needs to be able to understand its nuances and use the software effectively. To drive software adoption, you need to give your team training and resources on how to do this.
• Make sure it integrates with your existing systems. An automated billing mediation system has to work with other software tools you’re already using, like your CRM, CPQ, and metering systems. If it’s incompatible, keep looking.
• Have a dispute management process. When billing errors do occur, you need to have a standardized way of managing the resolution process. It helps to have a system where users can easily open a dispute ticket and track its status, and team members dedicated to billing errors.
• Look into data security. Work with a provider who is PCI compliant and offers secure payment gateways. And internally, make sure you set up your access controls, so only certain members of your team can see each customer’s billing details.

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