The economic troubles we are all now experiencing will serve as a boon to the on-demand market. It makes good sense that as further pressure is exerted on company budgets and balance sheets that many will look to economize by reducing IT expenses, however, those economies will take time to work their way through any organization. Translation – it was smart to begin on-demand adoption a few years ago but there’s no time like the present.

As good as all this might be for on-demand vendors – and it is good – there will be new challenges for them as they attempt to deal with expanding volume, that’s inevitable. One place where the strain of success might be first noticed for on-demand vendors is in billing and payments processing.

Almost since its inception, the on-demand (OK, SaaS) market has dealt with a hybrid solution in which companies delivered software as a service, but invoiced and collected the old fashioned way. It’s not well documented but the back office operations of on-demand companies put a great deal of stress on conventional billing systems.

Simply put, SaaS vendors demand more from a billing system. Where conventional vendors sell products now and then and invoice monthly for services, on-demand vendors bill monthly for their services. Add to that the notion that the SaaS vendor has to earn its stripes daily in all phases of the operation (not just service delivery) and you can see that billing is a tender spot.

Where there is need, innovation is never far behind and Zuora, a company founded by alumni of Salesforce.com and WebEx, has begun delivering the billing and payment infrastructure that, until now, SaaS vendors have gone without.

They’ve made do with conventional billing systems that constrict or constrain their businesses to deliver only the products that the billing system can understand. For example, a conventional billing system can blanch at the thought of billing for 20 seats of service, training for 5 and other services, only to be changed for the next billing cycle. Abetted by sometimes armies of agents helping customers to get their configurations and therefore the bills right, it has been a costly and unsatisfying struggle.

This week Zuora announced an association with PayPal. The partnership gives Zuora and its customers the ability to complete the round trip from correct invoice to payment completely electronically. It also makes it easier for vendors to offer a greater set of choices for on-demand services.

Zuora represents a new set of choices for vendors and customers who want to make the Web the focus of their computing. It is the tip of an infrastructure iceberg that I think we receive a big boost from the challenging economic times we appear to be entering.