What are open Source Billing Systems and which should you choose?

Compliance, security and privacy are becoming ever more important. This is especially true for billing systems, which require deep customization, store sensitive data and form the financial backbone of the company. 

With billing systems being nightmares for engineers and proprietary systems that often restrict flexibility, customization and hosting options, more and more enterprises are choosing open source billing systems like Lago. Using an open source billing system marries the flexibility and sovereignty of a homegrown system with the feature set of a proprietary vendor.

In this article, we'll explore why open source matters especially in billing, which options exist and when it's better to opt for a proprietary vendor or build your own system.

Who should choose open source billing?

Open source billing systems are best suited for companies who require more from their billing system than others. This usually comes down to a few aspects: 

• Privacy & security practices: Tightly regulated companies like banks, fintechs or public sector entities need to follow more stringent regulations, which means they often want to self-host their billing system to maintain full control over their compliance.
• Speed and scalability: The bigger the enterprise, the less willing they are to rely on someone else's infrastructure. You don't want millions of invoices to fail because a third-party vendor's servers failed.
• Customization: Many companies need integration with homegrown internal systems or want to customize more than proprietary vendors allow them to.

This means there are a few types of companies that typically prefer open source billing systems. Large enterprises, regulated industries and complex legacy businesses are the most common archetypes.

Who should not choose open source billing systems?

Many other companies should likely go with a simpler, proprietary system: Startups with simple needs, established companies without plans to run pricing experiments and companies with low compliance requirements should probably opt for a proprietary system.

Benefits of open source billing

The perception that open source tools are better because they're free/cheap is wrong. But using open source products has very real benefits: 

• Hosting sovereignty: When you have the source code, you can decide which hosting option you prefer. Whether that's on-prem hosting, public cloud hosting or fully air-gapped, you get to decide where the data lives to ensure privacy, security and compliance practices are followed.
• All the features, none of the headaches: When you use an open source system like Lago, you get the benefits of supporting a variety of pricing models (and regular new features and fixes), but without building your own billing system.
• No vendor lock-in: Proprietary systems typically steer you towards their own products and curtail integrations with competitors. An open source system is agnostic and can be integrated with just about any tool.
• Full transparency: Open source systems are more like Lego bricks than action figures. This means you can assemble the building blocks however you want to. Proprietary systems often need to be coaxed into behaving the way you want to because they're opinionated about what they support.

These advantages are especially important for companies with complex pricing models or unique business requirements.

Technical Flexibility and Integration Capabilities

For engineers, open source billing offers the ability to extend functionality, fix issues without waiting for vendor updates and create custom integrations with internal systems. This flexibility is particularly valuable for companies with:

• Multi-product offerings requiring unified billing
• Complex usage-based or consumption pricing models
• Hybrid pricing approaches combining subscriptions and usage
• International operations requiring localized billing rules

The ability to modify code and create custom connectors means that open source billing tools can adapt to virtually any business model or technical environment.

Choosing an open source billing system

If you've decided to opt for an open source billing system, Lago is one of the leading solutions. While there are other open source billing tools, Lago has garnered over 8500 GitHub stars and powers billing for enterprises with complex pricing like Together AI.

But if you're looking to use an open source billing system, evaluate a few criteria:

Core capabilities for billing systems

Any billing system you use should support the types of pricing and monetization strategies you want to employ. It should also support things you may want to do in the future. Migrating billing systems is painful. So even if you're not international, multi-product or experimenting with pricing now, it's good to choose a system that gives you flexibility in the future.

Your individual needs depend on you, but here are a few features to look out for:

• Usage-based billing with real-time metering
• Subscription management with flexible billing periods
• Prepaid credits and drawdown accounting
• Add-ons and one-time charges
• Hybrid models combining multiple approaches

(all of these are supported by Lago)

With billing, it makes sense to also buy features you're not using yet. If you ever need more complex billing, you'll wish you'd gone with the most complete feature set, not the easiest implementation now.

Technical Architecture for Scale

Using any open source billing system always requires engineering work. This is why you should also evaluate how the billing system works from a technical perspective. If APIs or webhooks are too rigid, low-throughput or have other issues, even the best feature set won't help.

Lago is API-first and offers webhooks into most of its features. This means the data is yours to use and build integrations with or pipe into external dashboards for analytics or other purposes.

• Distributed event processing for high-throughput scenarios
• Configurable aggregation rules for complex usage calculations
• Webhook-based integration capabilities
• API-first design for seamless integration with existing systems

For engineering teams, this means billing logic can be treated as code, versioned in repositories, and deployed through CI/CD pipelines alongside application updates.

How to implement open source billing: key considerations

If you've decided to go with an OSS billing system, it's time to make the switch. Billing systems are critical infrastructure and power the entire financial logic of your company, so migrations are hard.

Depending on company size, it requires a variety of people at the table: The engineers who implement it, finance who'll spend most time on billing, sales who needs to model custom deals, product/growth to know requirements, etc. This creates a web of incentives, with each team wanting to have their say and impact on which billing system to choose and what to build with it.

This is why the most successful implementations begin with a clear understanding of current and future billing requirements. This includes mapping out all pricing models, discount structures, and special cases that the system will need to handle. This means not just now, but also in the future. You don't want to have to migrate twice or have engineers build workarounds because you bought the wrong billing system.

Implementation Approaches

There are typically three paths to implementing open source billing:

1. Self-managed deployment with internal resources
2. Partnering with the solution provider for implementation support
3. Using a managed cloud version while maintaining customization options

Lago offers all three of those to give you the flexibility you need. Ultimately, flexibility is the only way to make all stakeholders happy:

Pricing Model Flexibility

Modern businesses need billing systems that can evolve alongside their pricing strategy. This might include:

• Starting with simple subscriptions and adding usage components
• Implementing volume-based discounts or tiered pricing
• Creating customer-specific pricing agreements
• Supporting promotional pricing and grandfathered plans

Open source billing tools excel in these scenarios because they can be modified to support new pricing approaches without waiting for vendor roadmaps[4].

Data and Analytics Integration

A strategic advantage of customizable billing systems is the ability to connect billing data with other business systems. This creates opportunities for:

• Revenue analytics and forecasting
• Customer usage pattern analysis
• Churn prediction based on usage trends
• Experiment-driven pricing optimization

By treating billing as a data source rather than just a transaction system, companies gain insights that can drive product development and business strategy.

Conclusion

Open source billing tools represent a strategic choice for companies seeking to build flexible, scalable revenue operations. By providing the perfect balance of customization and implementation speed, these solutions enable businesses to implement innovative pricing models that accurately reflect the value they deliver to customers.

For tech companies with complex billing requirements, platforms like Lago offer the technical capabilities needed to support sophisticated pricing strategies while maintaining the flexibility to evolve as business needs change. Whether deployed as self-hosted infrastructure or through Lago Cloud, these tools provide the foundation for a revenue engine that can adapt to changing market conditions and business models.

As you evaluate billing options for your organization, consider how your pricing strategy might evolve over the next 2-3 years and select a solution that provides the flexibility to support that journey. The right billing infrastructure isn't just about processing transactions today—it's about enabling business model innovation tomorrow.

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