stripe subscription and vat handling

AND VAT HANDLING

https://lingohub.com MADE WITH BY LINGOHUB

STRIPE SUBSCRIPTION

STRIPE IN A NUTSHELL

− REST API that is well documented and easy to use

− Create a customer and assign a subscription plan which has to be defined up front

− Main properties of a subscription plan on Stripe:

− Subscription plan name

− Amount to charge

− Payment interval (e.g. monthly vs. annually)

− Currency


⟶ Currency is a customer property. Once a customer has been created and a currency has been set, it can’t be

changed anymore and only plans of which currency matches the customer account can be assigned.

STRIPE IN A NUTSHELL

− When creating a subscription for a customer an according plan and additional

subscription properties like the following can be defined:

− Optional trial period which determines when the first payment will be made

− Optional tax rate which is applied to all invoices created for that subscription


WITH STRIPE


HANDLING SUBSCRIPTION CHANGES

HANDLING SUBSCRIPTION CHANGES WITH STRIPE

− Once a subscription is created a customer will be automatically billed by Stripe

− Once a payment is done Stripe delivers a web hook notification which we use to

generate invoices

− What happens if the subscription changes?

1. The subscription may be terminated at any time

2. The customer may want to upgrade to a new plan

3. The customer may want to downgrade to a cheaper plan

4. The customer may want to switch to a different payment interval (e.g. monthly to annually)

5. The VAT rate for the customer may change for various reasons


HOW STRIPE HANDLES SUBSCRIPTION PER DEFAULT

− Per default customers are invoiced only at the beginning of each predefined billing cycle

− All relevant changes in between are collected and will be considered at the beginning of

the next billing cycle

− This has some considerable implications:

− Payments are not attempted until the billing cycle ends. If a customer (annual billing) upgrades to a bigger

plan at the beginning of a cycle, you’ll have to wait for the payment being made for a long time.

− You can only define a single tax rate which is applied to all items on an invoice. If you sell goods requiring

different tax rates it’s not possible to summarize them in a single invoice.

− In case the billing frequency changes an invoice is created because a new billing cycle starts.


HOW WE HANDLE SUBSCRIPTION CHANGES

1. Subscription cancellation

As stated in our terms of use we don’t grant refunds in case a customer cancels his

subscription with LingoHub.

As payments are usually made up front we simply cancel the subscription immediately.

In this case it can be necessary to create a final invoice for all pending charges.



2. Upgrading to a bigger plan

When a customer upgrades we manually trigger an invoice creation for his

subscription because

− we don’t want to wait for the payment to be made at the end of the current cycle.

− we only want to include charges related to the subscription change. (Other items require a different tax

rate.)

− if the customer cancels the subscription before the billing cycle ends we’d have to create a final invoice which could delay the cancellation process as we’d have to wait for the payment before deleting the

account.


⟶ You have to make sure that the subscription ID is provided when creating the invoice, otherwise all pending

items are added to the invoice and the tax rate defined on the subscription wouldn’t be considered.


3. Downgrading to a smaller plan

This change is generally handled as upgrading to a bigger plan.

In this case a customer may receive a credit as he already paid for a bigger plan up

front and there may be time remaining on that bigger plan. An according balance is

added to the customer’s account on Stripe and automatically considered when

generating future invoices.



4. Changing the payment period

The plan change involves switching to a different billing cycle. Stripe creates an invoice

immediately as a new cycle is started. In this case we also enable proration to ensure

that remaining time from the old billing cycle is considered.



5. Changing the tax rate for a subscription

The VAT rate needs to apply to subscriptions and depends on the country where the

customer comes from or his business is registered. The tax rate might have to be

updated if the country (billing info) changes or a valid VAT registration number is

added/removed. The tax rate on the existing subscription has to be updated and the

new rate will be applied to future invoices.


BROUGHT TO YOU BY LINGOHUB

ANJA OBERMÜLLERBUSINESS DEVELOPMENT & MARKETING AT LINGOHUB

[email protected]@LingoHub@anjaobermuellerRead the whole article.


stripe subscription and vat handling

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