What is Functional Billing by Accounts?

In the new global economy, companies regularly do business across international borders. Subscription billing for customers in other countries requires functional billing by accounts. This simplifies reporting by translating figures based on exchange rates into a preferred currency when the billing occurs. Here’s a closer look at how functional billing works.

There are approximately 140 free-traded currencies in the world, but most businesses find that the top 10 currencies cover the vast majority, if not all, of their clients around the world. Right now, the top 10 currencies in order of global market share are:

• US dollar
• European euro
• UK pound sterling
• Japanese yen
• Canadian dollar
• Australian dollar
• Chinese yuan (or renminbi)
• Swiss franc
• Singapore dollar
• Hong Kong dollar

Notice that the bottom three currencies are traded by a tiny fraction of the world population, but they represent wealthy sectors. On the other hand, although India is the second most-populous nation in the world, the Indian rupee does not make the list because such a small percentage of global trade goes through India. British economists expect the rupee to become a major currency over the next two decades.

The Value of Local Currencies

The International Accounting Standards define functional currency to be the “currency of the primary economic environment in which the entity operates.” This is the currency that determines pricing, is used to pay expenses and is the most heavily regulated. For most US businesses, functional currency will also be the presentation currency, which is the “currency in which the financial statements are presented.”

HBSC reported that less than one-third of US businesses online say that they offer payments in local currencies. They concluded:

“This and other studies strongly indicate that to generate profits from overseas markets, doing business in local currencies is a big differentiator for eCommerce companies.”

A Big Advantage for Small Change

Businesses that can bill customers in whichever currency customers prefer gain an enormous competitive advantage. However, figuring out how to convert costs back and forth can be complex, unless the billing service provider handles it internally. Rebilly software automatically translates the amounts billed to and received from customers according to the applicable foreign exchange rate at the time of each transaction. No matter what else changes in global economics, people will always prefer using their own country’s currency. Functional billing by accounts removes one of the key barriers to commerce anywhere and everywhere.

Whichever subscription billing management tool you wind up using, currency options shouldn’t be the only thing you look at. Make smart subscription billing decisions without the stress by downloading our free report that covers security must-haves and has a bonus three-page feature checklist. Get it below: