Understanding Proration
The literal meaning of "proration" is to divide or distribute proportionally. For Billing, proration means the way a billed amount is distributed over partial billing cycles.
Let us take a look at the following scenarios to understand what proration is and why it is required.
Scenario 1
Start Date: 1/1/2016 End Date: 12/31/2016
The customer has opted for a monthly subscription to a product, where he starts using the services on the 1st of January 2016, and wants the invoice on the 1st of each month.
Here, the customer is consuming the product for a full month. This is a non-prorated scenario because Billing Schedules generated for this purchase will be even and uniformly distributed.
Scenario 2
Start Date: 1/20/2016 End Date: 1/19/2017
This scenario is similar to Scenario 1, except for the change in Start Date. The customer starts using the services on the 20th of January 2016 and wants the invoice on the 1st of each month.In this case, you would want to charge customers only for the duration (11 days) they have used the services rather than charging them for the entire month. To account for this partial period you’ll need the charge applicable for just this period which is the prorated amount. This prorated amount must be distributed proportionally between the resulting Billing Schedules.
Now there are different ways through which you can choose to distribute the prorated amount in Billing Schedules and thereby in the invoices,
- You could account for only 11 days, and send an invoice on the first of the month,
- You could combine the 11 days in the first full month and then invoice the customer or
- You might want to account for these 11 days in the last Billing Schedule of the Billing Cycle, thereby invoicing customers at the end of the contract.
Conga Billing offers the following Proration Treatment to comply with your business needs and practices:
- Separate Period
Proration, first of all, derives the prorated amount and second, identifies in which Billing Schedules it should distribute this amount. This is based on your selection of the Proration Treatment, each of which is explained in the following sections.
Separate Period
This is the default Proration Treatment. The prorated amount is separated out completely in two partial periods at the start and end of Billing Schedules.
|
Start Date |
End Date |
Ready for Billing Date |
Fee Amount |
|---|---|---|---|
|
1/15/2015 |
1/14/2016 |
2/1/2015 |
$100 |
|
Schedule |
Period Start Date |
Period End Date |
Fee Amount |
|---|---|---|---|
|
BS1 |
1/15/2015 |
1/31/2015 |
50 |
|
BS2 |
2/1/2015 |
2/28/2015 |
100 |
|
BS12 |
12/1/2015 |
12/31/2015 |
100 |
|
BS13 |
1/1/2016 |
1/14/2016 |
50 |
The Conga Billing Proration:
- Identifies if the period is a full period or a partial period.
- Derives the number of partial days.
- Calculates the prorated amount for partial days.
- Picks the applicable Proration Period Treatment based on the number of days for each partial period.
- Distributes the prorated amount in rest of the Billing Schedules proportionally.
To apply any one of the Proration behaviors, go to Billing Preferences and select a Proration Period Treatment as Separate Period. For information on Billing Preferences, please refer to Billing Preferences.
