What are billing credits? How billing credits improve cashflow and user experience
Joshua D'Costa
Growth & Marketing
Nov 30, 2025
|
5
min
Where SaaS products often charge by usage, billing credits have become a middle ground between flat subscriptions and purely pay-as-you-go models.
They let customers prepay or earn spendable credits in their account, which are then deducted as the product is used. Unlike a one-time discount or a traditional refund, a billing credit is actually a balance or prepaid coupon that customers can draw on for future charges.
For example, an AI API provider might sell 10,000 credits for $1,000 up front, then deduct 10 credits per API call. Credits can expire or roll over depending on your policy, but while they last they behave like a virtual currency inside your product.
What is Billing Credits?
Common formats of billing credits:
Prepaid bundles: Customers buy blocks of credits at checkout to use later, effectively pre-funding their account.
Promotional credits: Companies grant credits for marketing or support reasons like new sign-up bonuses, outage compensation, etc.. SaaS vendors often use free credits to attract sign-ups, or to make customers whole after service hiccups.
Refund-as-credit: Instead of issuing a bank refund, some platforms let you give the value back as account credit. In this case the customer still gets value, but the money stays in your ecosystem.
A solid credit system records every credit grant and usage in an immutable ledger, making it easy to show exactly which credits were applied to which invoice. Clear display and tracking in all these touchpoints is key so customers aren’t confused by where their money went.
How billing credits works
The mechanics of a credit-based pricing model are straightforward in principle. First, the business defines each credit’s value. For example, “1 credit = 1 API call” or “1 credit = 100 tokens”. Then:
Purchase (Top-Up): The customer buys a pack of credits in advance. This could be a one-time package or a recurring refill. For instance, a vendor might require customers to buy credits before making API calls.
Consume (Burn): As the customer uses the service, the system deducts credits in real time. Each action or unit of usage “burns” a set number of credits.
For example, Recraft, an AI image tool, charges 1 credit per basic image generation and more for advanced operations. If a customer generates two images, their credit balance drops by 2.Redeem or Refill: When the credit balance gets low, the user buys more credits. They keep spending until they run out. Some systems also allow bonus credits for new users or tiered pricing.
Expiry or Rollover: Providers can set rules for unused credits. They might expire after 30 days, reset periodically, or simply roll over indefinitely.
Using credits as a currency simplifies metering and packaging. Instead of billing separately for API calls, data storage, messages, etc., customers spend one common balance. Credits can cover multiple services without the mess of individual rates.
How billing credits improve cash flow
One of the biggest financial benefits of selling credits is upfront revenue. Since customers pay in advance for a credit pack, you collect cash immediately. This creates immediate cash flow and more predictable revenue for the business. Upfront payments smooth out the wild swings of usage billing.
For example, instead of waiting to invoice at month’s end and hoping the customer pays, you already have funds in hand.
Selling credits also aids forecasting: When customers pre-commit to a certain usage level by buying credits, finance teams can more accurately predict short-term revenue. Customers prepay for a block of usage and consume it at their own pace.
This smooths out variable usage patterns while giving finance teams a predictable spend. In practice, that upfront cash can reduce risks of churn or bad debt on any given invoice.
Credits can cut down on refund and chargeback losses: If a customer files a dispute or wants to cancel, issuing account credit keeps the money in-house. Instead of sending cash back, you re-load their balance.
Many platforms explicitly support this approach: for example, Pabbly’s billing system has a “refund as credit” feature. In effect, credits let you recover funds faster, the customer can immediately spend that credit on your service without you losing money to banks.
How billing credits improve user experience
From the customer side, billing credits often feel more flexible than rigid subscriptions or unpredictable bills.
Easier trials and upgrades: Credits enable self-service trials and upgrades. Instead of forcing a user to pick a monthly plan without knowing usage, you can give a bundle of free credits or let them buy a small pack to experiment.
Instant mid-cycle changes: A customer who wants to step up mid-month can simply purchase more credits or move to a larger plan. No contract change required.
Clear, perceived value: Each credit works like a small voucher the customer spends. That makes budgeting and feature prioritization easier. Because credits are consumed only when used, customers avoid surprises like paying for unused seats or features.
Faster dispute resolution: If a user has an issue like wrong charge, downtime, etc., issuing account credit restores goodwill faster than a bank refund.
Transparent tracking: Since all credit transactions are recorded in the billing ledger, support can clearly show when and where a credit was applied.
Implementing billing credits: Best practices
Policies: Define rules up front
Decide rules for expiry, stacking, transferability and anti-abuse checks.
Will unused credits roll over or expire at month-end?
Can promotional credits stack with paid credits?
Are credits transferable between accounts?
Clear policies, even simple ones prevent confusion and abuse, e.g., limit one free credit grant per customer or tie credits to a single account.
Billing and reporting:
Track credit sales and usage in your ledger. Selling a credit bundle typically creates deferred revenue, which you recognize as credits are consumed. Match credit sales to actual consumption to avoid overstating income. Log every credit grant and deduction so finance teams can reconcile which credits applied to which invoices.
Tax, compliance & UX:
Be explicit at checkout: label credit purchases clearly so users know they’re buying a balance, not a product. Disclose expiration and refund policies in simple language.
Consider local tax rules, some jurisdictions tax prepaid credits at purchase, others at redemption and ensure your billing provider or finance team handles this correctly. If you operate globally, choose a solution with built-in compliance support.
Integration:
Tie credits into usage events, billing and analytics. Your system should automatically deduct credits on usage, alert users when balances are low, and trigger top-up prompts during dunning flows. Integrate credit usage into invoices and dashboards so customers and finance teams see a single source of truth.
Many modern billing tools support credit-based pricing and usage models out of the box; integrate credits into analytics and CX tools to measure impact on retention, average order value and satisfaction.
Conclusion
Credit-based pricing gives companies a smoother cashflow from upfront payments while giving customers clear, flexible ways to pay for only what they use.
Dodo Payments support global sales (220+ countries and territories, 30+ payment methods) and handle tax/compliance in multiple jurisdictions, making it easier for your team to experiment with credit-driven models worldwide.
