Overview
This article clarifies the concept of prorated billing in subscription services. Prorated billing enables customers to modify their subscriptions at any time during a billing cycle, ensuring they are charged only for the days they use a service. We'll explain how prorating works, its benefits, its impact on balances, and invoice generation.
How it works
Prorate makes it easy for the customer to make changes to their account's monthly charges anytime they want. So, let's say the customer is paying for a service every month. If they decide to add a new service in the middle of their billing period, they'll get access to that new service right away, and they'll only be charged for the number of days they have it.
For example, if the customer's billing period starts on the 1st of the month and they add a new service on the 11th of a 30-day month, they'll have that new service for 20 days until the end of the month. Instead of paying the full monthly price, they'll only pay for those 20 days (The debit created will be prorated with XXXX/XX/11 to XXXX/XX+1/01 which equals 20 days). So, if the service costs $15 per month, they'll only pay $10 for those 20 days.
The amount they're charged will show up in their current balance, but it's not a amount that they have to pay right away. It's just there to let them know what they'll owe when the bill eventually comes.
This same prorate concept applies whether an agent manually changes a subscription or uses gaiia's automated workflows to do it.
The customer will only see the actual amount they need to pay when the invoice is generated. If they want to pay that amount right away, the agent can create an invoice directly. Or, they can wait until their regular billing date to get a single bill that includes everything on it.
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Another way to explain proration
All proration in gaiia is done on a real day basis; we never assume the month is 30 days. We account for the precise number of days in each month. Gaiia is configured so that we take the difference between two dates to calculate prorated charges - instead of the absolute number of days.
Example, a $59.900 subscription that is prorated from November 1st to November 15th. For manual debits/credits, the system calculates the pro-ration as follows: The difference between November 1st and November 15th is 14 days The total number of days in November is 30 days. Therefore, the proration calculation is $59.900 * (14/30) = $27,953.33 debited to the account If we were to use the absolute number of days (15), the calculation would be as follows: $59.900 * (15/30) = $29,950.
Given the example above, it's worth mentioning that gaiia users can control the charges by understanding that the proration logic "excludes" the end date. So if you wanted to pro-rate for 15 days, you would simply have to create a debit/credit for a time-span with a difference of 15 days (i.e., Nov 1 to Nov 16) It is also worth noting that any of the automated workflows (i.e., speed modification, suspension, activation, etc.) in gaiia will ensure that the total amount is captured. For example, with a fixed bill day on the 1st of the month, if you activate a customer on November 15th, they will receive a pro-rated debit from Nov 15-Dec 1 (because of the exclusion of the end date).