Billing Software vs. Payment Gateways — What’s the Difference and Why It Matters for SaaS

TL;DR

• Payment gateways move money securely between customers and your business (e.g., Stripe, PayPal).
• Billing software handles subscriptions, pricing logic, invoicing, and revenue metrics (e.g., Chargebee, Stripe Billing).
• You’ll need both, and eventually, entitlement logic to connect payments to product access.

Introduction

When building a SaaS company, your financial infrastructure is just as critical as your product. Two essential, but often confused, components are billing software and payment gateways. Understanding the difference is key to building a scalable, flexible revenue stack.

Payment Gateways: The Transaction Processor

A payment gateway is the infrastructure that securely processes credit card or bank transactions. Think of it as the digital version of a point-of-sale terminal.

Core responsibilities:

• Securely capturing payment details
• Authorizing transactions
• Encrypting sensitive financial data
• Preventing fraud
• Transferring funds from customer to merchant accounts

Popular payment gateways: Stripe, PayPal, Adyen, Braintree. Most charge per transaction (e.g., 2.9% + $0.30).

Technical features:

• Card tokenization
• Payment authorization
• 3D Secure verification
• PCI DSS compliance

Billing Software: The Subscription Manager

While payment gateways handle the movement of money, billing software governs the business logic: what to charge, when, and how.

Core responsibilities:

• Managing subscription plans and pricing tiers
• Generating and sending invoices
• Handling upgrades, downgrades, and cancellations
• Managing free trials and promotions
• Providing customer billing portals
• Tracking recurring revenue metrics

Popular billing platforms: Chargebee, Recurly, Chargify, Lago, Stripe Billing.

Technical features:

• Subscription lifecycle APIs
• Proration and metered billing
• Invoice generation
• Revenue recognition tools
• Dunning (retry) logic

Key Differences

The most fundamental difference: Payment gateways move money; billing software decides what to charge, how much, and when.

How They Work Together

In a typical SaaS stack, billing software and payment gateways work in tandem:

1. Billing software determines when to charge a customer
2. It instructs the payment gateway to process the transaction
3. The gateway processes the charge and returns success/failure
4. Billing software updates the customer record and generates an invoice
5. If payment fails, billing software manages retries and dunning workflows

The architecture often looks like this:

Your Application <--> Billing Software <--> Payment Gateway

But there’s one more crucial layer: entitlement logic.

Billing software handles pricing — but it doesn't enforce product access. You also need to connect billing outcomes to your product logic. That’s where entitlement systems like [gater.dev] (https://gater.dev) come in: they ensure only paying users access the right features, roles, or usage limits.

Your Application <--> Entitlement Logic <--> Billing Software <--> Payment Gateway

Common Implementation Mistakes

Mistake: Using a payment gateway as your billing system

Why it happens: Stripe and others offer subscription features, but they lack the flexibility for complex pricing, proration, or tax handling.

Fix: Use dedicated billing software to scale your pricing model.

Mistake: Building your own billing system

Why it happens: Early-stage teams assume it’s simple. But billing complexity snowballs quickly.

Fix: Avoid reinventing the wheel — use a purpose-built billing platform.

Mistake: Choosing tools that won’t scale

Why it happens: You pick what's fast for MVP, but later need usage-based pricing, multi-product bundles, or regional tax support.

Fix: Invest in tools that support both your current and future pricing models.

How to Choose the Right Solution

For Payment Gateways:

• Geographic and currency coverage
• Payment methods (cards, ACH, wallets)
• Fees and pricing transparency
• Developer-friendly APIs
• Built-in fraud detection

For Billing Software:

• Support for flexible pricing models
• Invoice and tax compliance tools
• Self-serve customer billing portal
• Strong reporting and analytics
• Easy integration with payment gateways

Bonus: For Entitlements (i.e. using a tool like gater.dev):

• Real-time enforcement of billing status in your product
• Integration with billing platforms
• Support for feature gating, user roles, and metered access

Conclusion

Understanding the distinction between billing software and payment gateways helps you design a financial stack that’s scalable and future-proof:

• Payment gateways handle secure money movement.
• Billing software governs what to charge, how much, and when.
• Entitlement logic enforces what users can access after they pay.

Early-stage SaaS companies may start with just a gateway, but they quickly need billing, and then entitlement logic, as complexity grows.

The infrastructure choices you make today will shape your ability to ship pricing experiments, support new business models, and enforce access at scale.

Choose tools that don’t just get you live — choose tools that grow with you.