Proration
Proration is the adjustment of a recurring charge so a customer pays only for the portion of a billing period during which a subscription or plan change was active.
It applies when someone signs up mid-period, upgrades, downgrades or cancels before the period ends. The charge is scaled to the days actually served.
Whether a change prorates, and whether the credit appears immediately or on the next invoice, is a commercial decision rather than a technical one, and it should be written into the contract.
Common questions
- How is proration calculated?
A prorated charge scales the full period fee by the fraction of the period actually served, normally counted in days. A monthly fee for a subscription active for 10 days of a 30 day month is charged at one third.
- Does an upgrade prorate immediately or at the next invoice?
Either is valid and it is a commercial decision rather than a technical one. Immediate proration issues a charge or credit at the moment of change; deferred proration rolls the adjustment into the next scheduled invoice.
- What is the difference between proration and a credit note?
Proration adjusts a charge before it is invoiced, so the invoice is correct when issued. A credit note corrects an amount that has already been invoiced and cannot be edited.